ECON Financial Economics

Transcription

1 ECON Financial Economics Winter 2017 Section 001: 3712 HBLL on T Th from 12:05 pm - 1:20 pm Course Information Description The course will explain the role and functioning of asset markets from an economic perspective. Materials Item Price (new) Price (used) Choose 1 of the following options: Option 1: 1 Item EBOOK INVESTMENTS 10E Required by BODIE, Z OR Option 2: 1 Item INVESTMENTS 10E Required by BODIE, Z Prerequisites Economics 380, 382 and 388. Learning Outcomes

2 Econ 450 students will be able to 1. Understand and derive the fundamental relationship between risk and return that is implied by the Capital Asset Pricing Model (CAPM). Students should also know the assumptions necessary for this model to hold and be capable of identifying when potential investment projects satisfy these assumptions. 2. Use linear regression to calculate an asset's historical sensitivity to broad market indices, its implied historical mispricing and an estimate of the asset's idiosyncratic risk. Students should also be capable of performing hypothesis testing on these values. 3. Replicate traditional tests of the CAPM using currently available data. 4. Be capable of collecting and analyzing asset market data to estimate the efficient frontier of risky assets using either Excel or another software package. Students should also be able to understand the efficient frontier mathematically and the reasons that it is useful. 5. Calculate the present value of a stream of payments given an appropriate discount factor. Students should know how to use the CAPM to derive potential discount factors for payment streams. 6. Calculate the yield to maturity of a stream of payments given an observed price. Students should also understand the relationship between the coupon rate of traditional bonds, their price and their yield to maturity. 7. Calculate forward rates for all future periods given the observed yield curve. 8. Understand the liquidity preference theory of bond markets as well as the expectations hypothesis. They should also be able to price complicated payment streams using observations of the yield curve and the expectations hypothesis. 9. Calculate the duration and modified duration of a stream of payments and use these to calculate optimal hedges given an arbitrary position in the fixed income market.

3 10. Calculate and understand bond convexity and its role (along with duration) in hedging. 11. Price forward contracts by arbitrage given a risk-free rate. 12. Price futures contracts whose payoffs are not correlated with the market reinvestment rate. 13. Understand currently used hypotheses regarding futures contract pricing. 14. Understand the structure of call and put options. 15. Price put options given a call option (and vice versa) using the put-call parity relationship. 16. Apply the Black-Scholes option pricing formula to price call and put options given beliefs about the volatility of the underlying asset. 17. Apply the Black-Scholes option pricing formula to calculate the implied volatility of an asset given its price. Program graduates will be further prepared to pursue a life of continued learning, analytic and critical thinking, and adjusting to changing information, needs, and challenges. Program graduates will be prepared and qualified to pursue graduate studies in economics, business, finance, law, public policy, and related disciplines. Program graduates who choose economics as a terminal degree will be prepared to accept productive jobs in consulting, business, finance, management, and related fields. Program graduates will be able to conceptualize a wide range of constrained optimization problems in economics and related fields and will be able to apply formal mathematical analysis to evaluate these problems.

4 Program graduates will be introduced to and become knowledgeable in one or more fields of economics including: history of economic thought, antitrust and regulation, law and economics, international trade theory, economic development, economic growth, monetary theory and policy, and natural resource and environmental, financial, labor, health, and agricultural economics. Grading Policy Grades will be based on students' relative performance on assigned problem sets (10%), two midterms (40%), a comprehensive final exam (30%) and a course project (20%). Problem sets are due at 4:00 p.m. in my box on the date listed in the syllabus. You are highly encouraged to form study groups although homework must be turned in individually. Please note the due dates for the midterm and final exams. Makeup exams will not be given. Instructor/TA Info Instructor Information Name: Scott Condie Office Location: 136 FOB Office Phone: Office Hours: Tue 3:00pm-4:00pm Thu 2:00pm-3:00pm scott_condie@byu.edu Assignments Assignment Description Problem Set 1 Due:, Jan 13 at 4:00 pm PS1.pdf Download Problem Set 2

5 Due:, Jan 20 at 4:00 pm Problem Set 2 (with no index model stuff).docx Download Problem Set 3 Due:, Feb 03 at 5:00 pm PS3.pdf DownloadPart2.pdf Download Problem Set 4 Due:, Mar 03 at 5:00 pm Market Microstructure.pdf Download PS4.pdf Download Problem Set 5 Due:, Mar 17 at 4:00 pm PS5.pdf Download PS5 Portfolio.xlsx Download Project Proposal Due:, Mar 21 at 5:00 pm 2016WinterSemesterProjectPayments.pdf Download Midterm 2 Due:, Mar 24 at 11:59 pm Midterm Exam 2 Final Exam Due: Monday, Apr 17 at 5:30 pm Course Final Exam. Problem Set 6 Due:, Apr 18 at 11:59 pm

6 You can ignore the file names on these. PS9.pdf Download PS8.pdf Download Project Due:, Apr 18 at 11:59 pm 2016WinterSemesterProjectPayments.pdf Download Point Breakdown Categories Percent of Grade Project 30% Final Exam 30% Midterms 30% Problem Sets 10% University Policies Honor Code In keeping with the principles of the BYU Honor Code, students are expected to be honest in all of their academic work. Academic honesty means, most fundamentally, that any work you present as your own must in fact be your own work and not that of another. Violations of this principle may result in a failing grade in the course and additional disciplinary action by the university. Students are also expected to adhere to the Dress and Grooming Standards. Adherence demonstrates respect for yourself and others and ensures an effective learning and working environment. It is the university's expectation, and every instructor's expectation in class, that each student will abide by all Honor Code standards. Please call the Honor Code Office at if you have questions about those standards. Sexual Misconduct

7 As required by Title IX of the Education Amendments of 1972, the university prohibits sex discrimination against any participant in its education programs or activities. Title IX also prohibits sexual harassment-including sexual violencecommitted by or against students, university employees, and visitors to campus. As outlined in university policy, sexual harassment, dating violence, domestic violence, sexual assault, and stalking are considered forms of "Sexual Misconduct" prohibited by the university. University policy requires any university employee in a teaching, managerial, or supervisory role to report incidents of sexual misconduct that come to their attention through various forms including face-to-face conversation, a written class assignment or paper, class discussion, , text, or social media post. If you encounter Sexual Misconduct, please contact the Title IX Coordinator at t9coordinator@byu.edu or or Ethics Point at or (24-hours). Additional information about Title IX and resources available to you can be found at Student Disability Brigham Young University is committed to providing a working and learning atmosphere that reasonably accommodates qualified persons with disabilities. If you have any disability which may impair your ability to complete this course successfully, please contact the University Accessibility Center (UAC), 2170 WSC or Reasonable academic accommodations are reviewed for all students who have qualified, documented disabilities. The UAC can also assess students for learning, attention, and emotional concerns. Services are coordinated with the student and instructor by the UAC. If you need assistance or if you feel you have been unlawfully discriminated against on the basis of disability, you may seek resolution through established grievance policy and procedures by contacting the Equal Employment Office at , D-285 ASB. Academic Honesty

8 The first injunction of the Honor Code is the call to "be honest." Students come to the university not only to improve their minds, gain knowledge, and develop skills that will assist them in their life's work, but also to build character. "President David O. McKay taught that character is the highest aim of education" (The Aims of a BYU Education, p.6). It is the purpose of the BYU Academic Honesty Policy to assist in fulfilling that aim. BYU students should seek to be totally honest in their dealings with others. They should complete their own work and be evaluated based upon that work. They should avoid academic dishonesty and misconduct in all its forms, including but not limited to plagiarism, fabrication or falsification, cheating, and other academic misconduct. Plagiarism Intentional plagiarism is a form of intellectual theft that violates widely recognized principles of academic integrity as well as the Honor Code. Such plagiarism may subject the student to appropriate disciplinary action administered through the university Honor Code Office, in addition to academic sanctions that may be applied by an instructor. Inadvertent plagiarism, which may not be a violation of the Honor Code, is nevertheless a form of intellectual carelessness that is unacceptable in the academic community. Plagiarism of any kind is completely contrary to the established practices of higher education where all members of the university are expected to acknowledge the original intellectual work of others that is included in their own work. In some cases, plagiarism may also involve violations of copyright law. Intentional Plagiarism- Intentional plagiarism is the deliberate act of representing the words, ideas, or data of another as one's own without providing proper attribution to the author through quotation, reference, or footnote. Inadvertent Plagiarism-Inadvertent plagiarism involves the inappropriate, but non-deliberate, use of another's words, ideas, or data without proper attribution. Inadvertent plagiarism usually results from an ignorant failure to follow established rules for documenting sources or from simply not being sufficiently careful in research and writing. Although not a violation of the Honor Code, inadvertent plagiarism is a form of academic misconduct for which an instructor can impose appropriate academic sanctions. Students who are in doubt as to whether they are providing proper

9 attribution have the responsibility to consult with their instructor and obtain guidance. Examples of plagiarism include: Direct Plagiarism-The verbatim copying of an original source without acknowledging the source. Paraphrased Plagiarism-The paraphrasing, without acknowledgement, of ideas from another that the reader might mistake for the author's own. Plagiarism Mosaic-The borrowing of words, ideas, or data from an original source and blending this original material with one's own without acknowledging the source. Insufficient Acknowledgement-The partial or incomplete attribution of words, ideas, or data from an original source. Plagiarism may occur with respect to unpublished as well as published material. Copying another student's work and submitting it as one's own individual work without proper attribution is a serious form of plagiarism. Schedule Date Column 1 Column 2 T Jan 10 Decision making under uncertainty and mean-variance analysis: B 4, BKM 5-7 Math and markets: BKM 1-4, B 1-3 Th Jan 12 Decision making under uncertainty and mean-variance analysis: B 4, BKM 5-7 F Jan 13 Problem Set 1 Due M Jan 16 Monday Martin Luther King Jr Day

10 T Jan 17 Th Jan 19 Decision making under uncertainty and mean-variance analysis: B 4, BKM 5-7 CAPM: BKM 9, B 6 F Jan 20 Problem Set 2 Due T Jan 24 Review CAPM: BKM 9, B 6 W Jan 25 Wednesday Th Jan 26 F Jan 27 T Jan 31 Th Feb 02 F Feb 03 T Feb 07 Th Feb 09 Exam 1 No class. Exam 1 Exam 1 Problem Set 3 Due

11 F Feb 10 T Feb 14 Th Feb 16 M Feb 20 Monday T Feb 21 Th Feb 23 T Feb 28 Th Mar 02 Presidents Day Monday Instruction F Mar 03 Problem Set 4 Due T Mar 07 Review W Mar 08 Wednesday Th Mar 09 F Mar 10 T Mar 14 Term structure of interest rates: BKM 15, B 13 Bond prices and yields: BKM 14, B 12 Exam 2 Exam 2 Exam 2

12 Th Mar 16 F Mar 17 T Mar 21 W Mar 22 Wednesday Th Mar 23 F Mar 24 T Mar 28 Th Mar 30 T Apr 04 Th Apr 06 T Apr 11 Th Apr 13 F Apr 14 M Apr 17 Bond prices and yields: BKM 14, B 12 No Classes Term structure of interest rates: BKM 15, B 13 Forward and futures markets: BKM Forward and futures markets: BKM Options Markets: BKM 20-21, B Options Markets: BKM 20-21, B Options Markets: BKM 20-21, B Options Markets: BKM 20-21, B Problem Set 5 Due Problem Set 6 Due

13 Monday T Apr 18 Th Apr 20 T Apr 25 Review Winter Exam Preparation (04/20/ /20/2017) Final Exam: 3712 HBLL 11:00am - 2:00pm