FIN450 Derivatives Syllabus

Transcription

1 FIN450 Derivatives Syllabus Instructor: Dr. Dayong Huang Room: 338 Bryan Phone: Office Hours: MT 9:00-10:00 Th 9:00-11:00 or by appointment Course Description Overview: This course introduces forwards, futures, swaps and options to you. Those are financial tools used extensively by hedge funds, mutual funds, firms, institutional investors and experienced individual investors. Learning Outcome: Upon finishing the course I expect you to understand the principals of following concepts: 1. Mechanics of futures and options markets. 2. Hedging using futures. 3. Price bounds on options. 4. Trading strategy using options. 5. Interest rates and forward and futures prices. 6. Interest rate futures and swaps 7. Binomial Tree Pricing and Black-Scholes model for options 8. The Greek letters. Textbook Required: Fundamentals of Options, Futures and Other Derivatives, John Hull, 6 th edition, 2008, Pearson Prentice Hall. Websites Strongly Recommended: General Finance Sites: Chart School and Technical Websites: 1

2 Industrial Specific Links: Grading: There will be 3 exams. They are equal weighted and 80% of your grades. The exams will be in terms of problems and essay questions. Final is cumulative. Exam dates are Exam 1: Exam 2: Final: University Scheduled Date We have 6 random quizzes (usually takes about minutes) and they are 10% of your grade. I will count the highest 5. You need to work on the end of chapter questions and those are usually sources for quiz questions. Trading simulation is 10% of your grade. You are graded based on your performance and number of trades. I am expecting two well thought round-trade each week. Your number of trades needs to be at least 60 and well distributed across time to avoid penalty. If your performance is very good, you get up to 3 bonus credit. If you beat my performance, you get 1 bonus credit. We use investopedia.com for simulation. For all tests and quizzes, you need to show your steps and all the details. Makeup Exam Policy: Makeup will only be provided under extreme situations such as being hospitalized with documented proof from the university. There will be no makeup for quizzes. Attendance Policy: Choose a seat you want to sit on the second day of the class and that helps me to learn your name with my seating chart. I expect you to attend each class. It will be extremely hard to follow if you miss classes because this class is very technical and mathematical. I will keep your attendance record. Your attendance usually helps you a lot if you need a slight bonus when your grade is very close to the cut-off scores. Grading Scale will be as follows: 95%-100% = A+ 2

3 90%-94.9% = A 88%-89.9% = A- 85%-87.9% = B+ 80%-84.9% = B 78%-79.9% = B- 75%-77.9% = C+ 70%-74.9% = C 68%-69.9% = C- 65%-67.9% = D+ 60%-64.9% = D Below 60% = F Note that a grade of Ds is not an option for a graduate student by the policy of the graduate school. Expectation: I expect you to: 1. Show up. 2. Read book before you come to class and be prepared to ask and answer questions. 3. Spend 5-8 hours outside class on the subject each week. 4. See me ASAP if you have problems. 5. Work hard and show respect to class. The university and Bryan School has detailed code on student conduct. See the following links: Academic Integrity Policy: The UNCG community subscribes to the following fundamental principles of academic integrity: honesty; trust; fairness; respect; responsibility. All violations of the Policy are violations of the principle of honesty but may also create questions related to trust, fairness, respect, and responsibility. The below listed violations of the Academic Integrity Policy are typical, but not exhaustive, examples of the acts that constitute breaches of the Policy. Cheating: Intentionally using or attempting to use unauthorized materials, information, or study aids in any academic exercise. Plagiarism: Intentionally or knowingly representing the words of another, as one's own in any academic exercise. 3

4 Misuse of Academic Resources: The intentional use, misuse or alterations of University materials or resources so as to make them inaccessible to other users. Falsification: Intentional and unauthorized falsification or invention of any information or citation in an academic exercise. Facilitating academic dishonesty: Intentionally or knowingly helping or attempting to help another to commit an act of academic dishonesty. The minimum sanction of violating the policy is a grade of Fail for the class. Tentative schedule Topic 1 Mechanics of Futures Markets CH1&2 2 Mechanics of Options Markets Ch8 3 Hedging Strategies using Futures Ch3 4 Interest Rates Ch4 5 Determination of Forward and Futures Prices Ch5 6 Interest Rate Futures Ch6 7 Swaps Ch7 8 Properties of Stock Options Ch9 9 Trading Strategies Involving Options Ch10 10 Binomial Trees and Black Scholes Ch11&12 11 Greek Letters Ch15 4

5 Formula and derivations. C = S 0 N(d 1 ) e rt N(d 2 ) (1) P = e rt N( d 2 ) S 0 N( d 1 ) (2) d 1 = ln S 0 d 2 = ln S 0 When dividends are considered + (r + )T 2 + (r 2 )T (3) (4) C = S 0 e qt N(d 1 ) e rt N(d 2 ) (5) P = e rt N( d 2 ) S 0 e qt N( d 1 ) (6) d 1 = ln S 0 d 2 = ln S 0 + (r q + )T 2 + (r q 2 )T When considering currency, replace q with R f. (7) (8) (Call) = e qt N(d 1 ) (9) (P ut) = e qt [N(d 1 ) 1] (10) Θ(Call) = S 0N (d 1 )σe qt 2 + qs 0 N(d 1 )e qt re rt N(d 2 ) T (11) Θ(P ut) = S 0N (d 1 )σe qt 2 qs 0 N( d 1 )e qt + re rt N( d 2 ) T (12) Γ = N (d 1 )e qt S 0 (13) ν = S 0 T N (d 1 )e qt (14) ρ(call) = T e rt N(d 2 ) (15) ρ(p ut) = T e rt N( d 2 ) (16) 1