UNIVERSITY
OF
DEPARTMENT OF ACCOUNTING AND FINANCE
FINANCE 9.4270
OPTIONS, FUTURES AND OTHER DERIVATIVES
WINTER, 2009
Alexander Paseka
Office:
Phone: 474-8353
E-mail: paseka@cc.umanitoba.ca
Web Page: http://home.cc.umanitoba.ca/~paseka/
Office Hours: Mondays and Wednesdays 1:00 pm – 2:00 pm or by appointment
Required Course Materials:
Text: Options, Futures and Other Derivatives by John Hull (7th edition)
Options,
Futures and Other Derivatives
Solution Manual by John Hull
Another useful book (not required): Trading and Exchanges - Market Microstructure for Practitioners by Larry Harris
Calculator: Standard financial calculator will be more than enough. Your calculator has to be able to deal with exponents, logs and powers. You are required to figure out how to use your own calculator. Bring it to each class and exam. Check the batteries before each test.
Course Description and Objectives
This course covers the details of forwards, futures, swaps, and options. By
the end of the course, you will have a good knowledge of how these contracts
work, how they are used, and how they are priced. Individuals who are skilled
at analyzing derivatives are in high demand in financial centers throughout the
world.
The focus is to a great extent on developing problem solving abilities. The following topics will be covered.
PRELIMINARY OUTLINE
|
|
Introduction; Chapter 1 |
|
Week 2: |
Futures
Markets; Chapter 2 Determination of Futures and Forward Prices; Chapter 5 |
|
Week 3: |
Determination of Futures and Forward Prices (continued); Chapter 5 Hedging Strategies Using Futures; Chapter 3 |
|
Week 4: |
Interest Rate Markets; Chapter 4 |
|
Week 5: |
Interest rate Futures and Swaps; Chapters 6 and 7 |
|
Week 6: |
Mechanics of Options Markets; Chapter 8 Properties
of Stock Options; Chapter 9 Mid-Term Exam I (February 11) |
|
Week 7: |
Introduction to Binomial Trees; Chapter 11 |
|
Week 8: |
Options on Stock Indices, Currencies,
and Futures; Chapters 15, 16 |
|
Week 9: |
Options on Stock Indices, Currencies, and Futures; Chapters 15, 16 |
|
Week 10: |
The Greek Letters; Chapter 17 |
|
Week 11: |
Volatility
Smiles; Chapter 18 |
|
Week 12: |
Value at risk; Chapter 20 |
|
Week 13: Week 14: |
Estimating volatilities and
correlations; Chapter 21 Assignment is due April 13 |
Assignments
There is a take-home assignment (for more information see the web site). This assignment is comprehensive but will
be more biased towards the last material we cover at the end of the term. You
can work in groups of up to four students. In fact, I encourage you to organize
some sort of study groups with other students. That way you can help each other
to understand the material much better. The due date is Monday, April 13 (before midnight of that day). You
are required to submit your work in an electronic form (just email your
Excel files to me). Please, make sure that your presentation is as clear as
possible. Clarity is very important skill! It will save time for both you and
me.
Remember that each of you has to contribute an equal share of effort to your
group's assignment. I will not arbitrate any disputes within a group that arise
based on that.
Excel is the primary statistical tool. I will explain how to use it for our purposes in class as we go over the material.
Practice exercises
You should constantly check how well you understand the material by solving the end-of-chapter problems and problems we do in class. Your being able to solve the end-of-chapter problems is essential to your success, since many similar problems will be on your tests.
Exams
There will be two equally weighted midterm exams and a project. There is no final exam.
Grades
The distribution of grades is as follows:
|
Exam |
Percent of Total Grade |
|
Group Assignment |
15% |
|
Mid-Term I |
40% |
|
Mid-Term II |
45% |
Final grade will depend on the student's weighted grade from the tests and the assignment and performance relative to other students!!! So, instead of trying to compute your grade in advance you are advised to do your best on all three of the above assignments.
Attendance: The rule is simple. If you do not attend regularly, you may ruin your chances of succeeding in the class. Regular attendance is vital for your progress and the amount of knowledge you will acquire in the next three months.
Policies: You are allowed to use calculators during the tests. Exams are not comprehensive and consist of a mixture of multiple-choice and essay questions. All tests are closed-book. However, you may bring 2 pages (1 sheet) with formulas of your choice to each of the tests. You must bring your own calculator and pencils.