A friend recently asked advice about the final year course work at his top tier Ivy League Business School MBA program. I thought it would be useful to share the choices I made in my final MBA year at Columbia Business School ten years ago. The finance graduate course work at Columbia Business School fulfilled a number of objectives. My intention was to get a broad as well as deep coverage of theories, products, practices, markets & models in the derivatives / options / structured transactions arena. For a slightly off beat post please see my post on the January Term fast track option at Columbia Business School.
The course on tax planning served as a reality check on what would and would not work in the financial services sector from a tax perspective.
Starting with simple call options the course taught how to build models of complex financial securities in Excel, Mat lab, Crystal Ball & Mathematica. Models included single and multi dimensional trees, simple and compound options, swaps and other interest rate derivatives. We also covered dynamic interest rate models and the application of these models to interest sensitive securities. Other topics included multi-period portfolio optimization. Techniques studied included Monte Carlo simulations, Matrix manipulation using Mathematica and Financial modeling & multi dimensional simulations using Excel.
Over the last ten years of my professional life Security pricing turned out to be one of the most useful courses I ever took at Business school with an almost infinite ROI on my invest in time and tuition fees.
Work done & Evaluation
Besides the 3 hours per week, assignments on implementing the techniques covered in weekly class sessions were also handed out. Course evaluation included class participation, weekly assignments and an open book, financial modeling final exam
Focus of assignments was to build models in excel and then transport them to MAT LAB programs. An assignment would ask for an excel model, a matlab model or both. Models included
- Hedging & risk management simulation
- Option & greeks (delta, gamma, vega, theta) pricing, & simulations
- Multi dimensional (multi state) trees
- Path dependent exotic options
- Implied volatilities
- Portfolio Optimization simulations
- Multi-period portfolio optimization simulations
- Interest sensitive securities (bond analytics, swaps, swaptions)
- Interest Rate models (Black Derman Toy, Ho-Lee, HJM)
Key takeaways from the course included
- Hedging Models for Risk Management covering isolation and hedging of Deltas & Gamma, regression hedging, examples and applications
- Numerical Option Pricing (European as well as American) and estimation of Greeks by various approaches (closed form formulas as well as simulation)
- Pricing of exotic securities by simulation & replication
- MATLAB introduction, programming and applications
- Path dependent securities and options on multiple assets
- Financial engineering; implied volatility curves
- Multi-period portfolio optimization & models, including growth optimum criterion and multi-period risk measures
- Structured option portfolios: static hedging versus dynamic hedging, application to long-term option replication
- Mean-variance efficient frontiers
- Interest Rate Models and Pricing Interest Rate Sensitive Securities
- Pricing derivatives (bond options, interest rate swaps and swaptions) in interest rate lattices
- Interest rate lattice models: Ho-Lee and Black-Derman-Toy
- The Heath-Jarrow-Morton yield curve model
Continuous Time Finance
This was an advanced PhD course on Black Scholes analysis. A base was initially built on concepts, theorems and derivations of stochastic processes, conditional expectations, state prices, martingales & replication of securities. The covered material was then used to rationalize, drive and understand Black-Scholes analysis as it applies to option pricing & interest rate models
Work done & Evaluation
3 hours per week, class participation and a final exam
Key takeaways from the course included
- Definition and derivation of Stochastic processes & Integrals
- Girsanov’s theorem and Ito’s Calculus, covering processes, lemma’s, integrals and manipulations
- Definition, derivation and application of Guassain processes
- Securities and trading strategies within a mathematical/stochastic framework
- Martingale valuation principles
- The derivation & mathematical proof of Black Scholes Model
- The derivation & mathematical proof of Guassian term structure models
Taught by a derivatives trader working for Morgan Stanley/JP Morgan, the course presented a brief over view of theory, terminology and practices within the field of fixed income derivatives. We jumped headlong into pricing exotic options, swaps, swaptions, interest sensitive securities, credit derivatives, equity derivatives, compound options, asset backed securities & trading strategies. Even though pricing was covered as part of the course work, assignments & exams, the course had an extremely strong market/trading flavor. In almost all session equal emphasis was placed on theoretical pricing models as well as current market practices and anomalies
In Security Pricing the emphasis was on understanding the model and then developing an appreciation for the most efficient pricing mechanism in MAT LAB and Excel. In Advanced Derivatives the focus was on using Excel to price derivative trades using exotic derivative instruments. Security pricing also had a wider depth whereas Advanced Derivatives focused only on trading derivative instruments.
Work done & Evaluation
Besides the 3 hours per week, assignments on implementing the techniques covered in weekly class sessions were also handed out. Course evaluation included class participation, weekly assignments, a mid term and a final exam.
Assignments focused more on extending the work done in class then replicating it. Assignment topics included
- Review of close form formulas for options, exotics & path dependent securities
- Pricing spreadsheets for exotic option trades
- Pricing spreadsheets for swaps and swap trading ideas
- Pricing spreadsheets for advanced swaps including forward starting swaps and swaptions
- Pricing spreadsheets for Structured Notes
Key takeaways included
- Pricing models for Exotic options including binaries, knock in and knock outs.
- Fixed Income over the counter derivative market. Fixed-Floating swaps and swap spreads. Basic swaps, generic swaps, forward starting swaps and unwinds and pricing using futures and the swaps curve.
- Caps, floors and exotic cap trades
- Pricing of swaptions, yield-enhancing trades, embedding short option positions into swaps, cancelable swaps, Index amortizing swaps and knockout swaps
- Credit derivatives, structured note market, pricing of structured notes including capped floaters, inverse floaters, range index bonds
- Mortgage securities & derivatives, trading, pre-payment risk and prepayment models, CMO’s and Option Adjusted Spread Analysis
- Equity derivatives, trading, products, including restructuring and reverse engineering of convertibles
- Trading ideas and themes for exotic derivative instruments
Tax Factors in Business Decisions
Taught by one of the leading tax consultant for Corporate America, as well as the US Treasury Department, this course focused on tax planning fundamentals within business organizations. The course started by introducing basic tax rules and developing a conceptual framework for conducting tax planning. Then the rules and concepts were applied to institutional areas, including investment banking, multinational corporations, capital structure, compensation and real estate. International tax frameworks were also addressed.
Course work and evaluation
3 hrs a week, 12 weeks, multiple term assignments and a final project
Key topics covered during the course included
- Types of tax planning (type shifts, category shifts & time shifts)
- Production decisions and their impact on selection of organizations forms (corporate forms of ownerships & tax related pro’s & cons)
- Implicit tax effects on asset prices and saving vehicles
- Tax planning equilibrium and arbitrage across markets and institutions
- Employee Stock ownership, employee stock option plans
- Real Estate Investments
- Multinational tax planning – International Investment Decisions
- Multinational tax planning – Foreign Tax credit limits and capital structure issues
- Multinational tax planning – Tax impact on capital structure and dividend policy
- Mergers and Acquisitions – Taxable Mergers and acquisitions
- Mergers and Acquisitions – Tax-free reorganizations & Divestitures
- Mergers and Acquisitions – Preservation of tax attributes in Reorganizations
- Estate and Gift tax planning
Faculty details and information
Overview of graduate course work done by applicant at Columbia Business School for credit towards the Master of Business Administration (Finance) program
E.1 Faculty details and information
415 Uris Hall,
Graduate School of Business
New York, NY 10027
Phone: 212 854-4103,
Fax: 212 316-9180
|Course Link: http://www.columbia.edu/~mnb2/B8835/http://www.gsb.columbia.edu/divisions/mgmtsci/broadie.htmlProfessor Broadie teaches the core course Decision Models and the elective Security Pricing: Models and Computation. He is interested in the use of management science techniques and computational methods to solve problems in risk management, the pricing of derivative securities and portfolio optimization. Broadie is an associate editor of Management Science and Mathematical Finance and a coeditor of the Journal of Computational Finance. He has served as a consultant to several investment banks, and previously he was a vice president at Lehman Brothers in the fixed-income research group.
|Continuous Time Finance
Maria VassalouPhone: 212-854-4104Fax: 212-316-9219[email protected]
|http://www.gsb.columbia.edu/faculty/mvassalouProfessor Vassalou specializes in international finance. The main focus of her research is on international asset management. Her most recent work examines the profitability of international equity trading strategies based on book-to-market, size and momentum information. She documents that the positive returns of such zero-investment strategies are due to risk premiums related to the future state of the macroeconomy. Vassalou teaches an MBA elective on international asset management and a PhD seminar on the theory of derivatives securities.
607 Uris Hall,3022 Broadway
Graduate School of Business
New York, NY 10027
Phone: 212 854-2641 Fax: 212 316-9219[email protected]
Professor Kemsley studies the effects of taxes on the business decisions of multinational corporations, examining the international production location, transfer pricing and accounting strategies of large U.S. companies. He also examines the effects of dividend and capital gains taxes on stock values, price to earnings ratios and the relative cost of different components of equity capital. In his latest work, he empirically examines the value of the corporate debt-tax shield. Kemsley teaches accounting and taxes, including an elective course on taxes and business strategy.
|Ph.D., in Finance, Graduate School of Business at Stanford University. Member of the Investor Derivatives Marketing Desk at J.P. Morgan. Structures and markets fixed income over-the-counter derivatives for financial institutions including banks, insurance companies, and asset managers.
E.2. Graduate Course work performed for MBA at Columbia Business School
During the Course of my program, I took 21 courses. Six of these were required core courses while, the remaining fifteen were electives that I chose to round out my background. Each course lasted 12 weeks, with three hours of classes per week & weekly case assignments or discussions. With the exception of Economics of Strategic Behaviors, all courses either had a final exam or a final individual or group project.
Eight of these electives focused on Management / non-Finance issues that would help me address my business concerns above. Three of the remaining six focused on Organizational Finance, while the final three extended my knowledge in the domains of swaps, interest rate models & advanced financial modeling. The focus of these three courses was on the Black Scholes equation, the theory behind it, its derivation and applications. We also worked with closed form and simulation pricing techniques for a number of derivative products.
The fifteen elective courses were
- In Search of the Perfect Prince
- Economics of Strategic Behaviors
- International Marketing
- Advertising Management
- Top Management Processes
- Tax Factors in Business Decisions
- Strategic Management of the Enterprise
- High Performance Leadership
Finance & Accounting
- Emerging Financial Markets
- Continuous Time Finance
- Security Pricing
- Advance Derivatives
- Turnaround Management
- Entrepreneurial Finance
- Valuations & Financial Reporting
In Search of the Perfect Prince
The course had two central themes
- History repeats itself and we can learn something from the mistakes that leaders made in the past
- Self awareness is the best gift we can give ourselves
The course used Shakespeare’s historical plays to emphasize and analyze leadership choices and decisions that changed the course of history / nations. Course exams emphasized understanding the difference between leaders, followers and managers and asked us to apply our newly acquired Shakespearean insights to five business cases.
John Whitney, a respected turnaround specialist and a former vice Dean at Harvard Business School taught the course. Whitney recently published a book “Power Plays” that came out of this course and received very favorable reviews in business press.
Economics of Strategic Behaviors
Presented a framework for evaluating competitive advantages and barriers to entry. The framework used industry analysis, tests for existence of barriers to entry, validation by a review of numbers and industry simulation by classmates. We worked with 12 case applying the developed framework. Some of the business situations studied included
- Kodak versus Polaroid
- Wall Mart
- Coke versus Pepsi
- Fox Broadcasting
- People’s Express
- Compaq computers
- Coors light
Bruce Greenwald, one of the most respected Finance & Economics Professor at Columbia Business School taught the course. Professor Greenwald also teaches Value Investing, a course that builds up on the framework covered in Economics of Strategic Behaviors. A shorter 3 day version of the course has been approved by the Society for 6 PD credits
Top Management Processes
Taught by a successful General Manager, Academic & Practitioner at Becktin Dickinson & Company, Top Management Processes had a central premise – “General Management skills can be taught. General Managers are not born but bred”
The course broke down general management into a number of processes & was a case study of 8 general managers working with one or more processes at a time. Starting off with Arthur D Little, the course included intense discussions on the management styles at Cypress Semi Conductors, Pepsi Co, Times Mirror, Harvard Business School Publishing, E-Coverage, American Express, Emerson Electric & British Steel. The general management processes studied included Vision, Strategy Formulation, Resource Allocation, Decision Making, Change, Taking Charge, Leadership & Communications
Broad coverage of issues in international marketing. We covered international brands, communication strategies, integrating global marketing strategies, cultural issues, market segmentations and the impact of product cycles on all of the above. A review of advertising campaigns including Volkswagen, Mountain Dew, McDonalds, Burger King, North Western Mutual, Nescafe & Foster Beer covering 30 years of media ads was used to apply key lessons covered in the course
Building up on the material covered in International Marketing, Advertising Management was a study of different entities & processes involved in building integrated communication strategies. The course used a rich mix of guest speakers from New York’s advertising industry, cases & reviews of advertising campaigns for illustrations.
Strategic Management of the Enterprise
What is strategy, what is vision, what is direction and how are they related to execution. Guest speakers (Chairman of Lucent Technologies, Chairman of Enterprise Networks, Chairperson of Land Lease, Head of Ernst & Young’s Insurance Practice, Managing Partners from Mckinsey & Goldman Sachs) worked with students to develop answers to the above questions. We used 12 cases in parallel to apply the insights developed as part of group and class work to business situations including
Finance & Accounting
Emerging Financial Markets
Presentation and application of a frame work for evaluating opportunities in emerging capital markets. Review, analysis and investing decisions on actual opportunities in the context of nascent economies in Central Europe, Russia, South American and Asia
Continuous Time Finance
Derivation and applications of the Black Scholes Partial Differential Equation. This was a PhD seminar with a final exam that required a high comfort level with stochastic calculus and its applications in deriving the Black Scholes formula
How do you resuscitate a dying business? The course reviewed a number of cases to illustrate common reasons leading to turnaround situations, turnaround strategies, financial modeling of failing companies, relationship management with stake holders, negotiations with debt holder, bankers, suppliers and customers. We did comprehensive financial analysis for three firms in crisis situation and developed & presented turnaround strategies for each of them to a mock group of stakeholder formed by our classmates
How do you place a value on a business where there are no cash flows or comparables? What is a fair and just allocation of equity between investors and owners? How does the venture capital process work? How would you work out a deal between a promising startup up and your venture fund? What is it that defines a promising startup? Using a framework of People, Context, Opportunity and Deal, the course worked with cases, speakers & presentations to develop answers to each of the above questions. A two day version of this course has been approved for 9 PD credits by the Society of Actuaries
Valuations & Financial Reporting
Financial Analysis from an accounting point of view that allowed us to trace the impact of strategy, competitive advantages & financial decisions to dollars and cents. Once again cases were used to illustrate the frameworks and applications taught in the course. A final optional project was completed by me that performed the strategic analysis and valuation of C|Net.com, an internet info-mediary.