Industrial Engineering and Management Ma, Management science, 6 credits

Aim

The course intends to give the student insight in standard methods for valuation of financial and real assets and the critique against these methods and ideas.

The student should through a systems analysis perspective be able to calculate, using computer software, stochastic optimization problems and be aware of its relation with option pricing theory.

The student should be able to apply DEA on economic problems.

Course objectives

After this course the student should be able to
- Calculate the value of real and financial options using the binomial model
- Understand the foundation of real options and how they differ to traditional discounted cash flow methods, as well as how they are calculated using dynamical programming.
- From an overall perspective be able to define and solve stochastic optimization problems
- Understand the relation between option pricing theory and stochastic optimization
- Perform economical calculations with the DEA method

After this course the student should have knowledge about
- Different market hypothesis
- The relation between the binomial and the black scholes model for option valuation
- Other application domains for dynamical programming

Content

Course consists of
- System analysis in management and economics, overall perspectives
- Market hypothesis
- Capital Asset Pricing Model (CAPM)
- Option, futures and forward contracts, strategies
- Calculating financial options with the binomial model
- Relation between the binomial method and black scholes formula for option valuation
- DCF and real options.
- Extension of the binomial model for different types of real options and how these can be solved using dynamical programming
- CBA using stochastic optimization and its relation to option theory
- DEA and calculations of efficient frontiers
- Orientation about other methods

Entry requirements

Business Organisation and Management BA (ABC), 30 credits including Mathematical modelling, Decision Analysis and Mathematical Statistics, 6 credits.

Selection rules and procedures

The selection process is in accordance with the Higher Education Ordinance and the local order of admission.

Teaching form

The course will have lectures. The students project assignments. The project assignments can be done indvidually or in groups of two students

Examination form

6.0 hp, R101: Written report and oral presentation.
Grades: A, B, C, D, E, Fx and F. A-E are passed and Fx and F are failed.

Grading criteria for the subject can be found at www.miun.se/en/Student/Services/Grading-Criteria

Grading system

Seven-grade scale, A, B, C, D, E, Fx and F. Fx and F represent fail levels.