FIN480-01 Course Syllabus Department of Economics & Finance ...
FIN480-01 Course Syllabus Department of Economics & Finance ...
FIN480-01 Course Syllabus Department of Economics & Finance ...
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<strong>Course</strong> Title:<br />
<strong>FIN480</strong>-<strong>01</strong> – Options and Futures Markets<br />
Term:<br />
August ~ December, 2006<br />
Classes Meet:<br />
Tu/Th: 12:00 p.m. – 1:15 p.m. in MH107<br />
Prerequisite:<br />
FIN3<strong>01</strong>, FIN360<br />
<strong>FIN480</strong>-<strong>01</strong> <strong>Course</strong> <strong>Syllabus</strong><br />
<strong>Department</strong> <strong>of</strong> <strong>Economics</strong> & <strong>Finance</strong><br />
University <strong>of</strong> Dayton<br />
Pr<strong>of</strong>essor:<br />
Dr. Carl R. Chen<br />
Office: Room 505 Miriam Hall<br />
Phone: (937) 229-2418<br />
E-mail: chen@udayton.edu<br />
Website: http://academic.udayton.edu/carlchen/<br />
Office Hours:<br />
M/W 11:30a.m. - 12:45 p.m.<br />
T/TH 2:15 p.m. - 3:30 p.m.<br />
Others by appointment<br />
Textbook:<br />
Don M. Chance. An Introduction to Derivatives and Risk Management,<br />
South-Western Publishing, 6 th edition, 2004.<br />
Supplementary Materials:<br />
Wall Street Journal,<br />
World Wide Web Sites,<br />
CBOE New Letters,<br />
Financial Engineering News Letters,<br />
X_Trader 7,<br />
Journal <strong>of</strong> Futures Market,<br />
Journal <strong>of</strong> Derivatives.
<strong>Course</strong> Objectives and Description:<br />
Methodology:<br />
The purpose <strong>of</strong> this course is to extend the student's knowledge <strong>of</strong> security valuation by<br />
examining the structure, valuation, and uses <strong>of</strong> derivative contracts. The course develops a<br />
general, but rigorous framework for valuing futures and options contracts and shows the<br />
interrelations between these contract markets and the markets for the underlying securities.<br />
Specific examples are drawn from derivative contract markets on stocks, stock indexes,<br />
debt instruments, and foreign currencies.<br />
The first part <strong>of</strong> the course will focus on the options markets, options pricing, and options<br />
trading strategies. The second part <strong>of</strong> the course will be devoted to the pricing <strong>of</strong> the futures<br />
contracts, and futures trading strategies. Wall Street Journal articles, CBOE News Letters,<br />
and Financial Engineering News Letters that are related to the derivatives will be discussed<br />
in the class.<br />
Although lecture is the principal class format, I encourage all students to engage in<br />
discussions. Interactive instructing methodology is the key to successful learning. Students<br />
should participate in the class discussion by asking and answering questions and by<br />
presenting information relevant to the topic area. Lectures are needed to present the<br />
concepts, but questions and discussions are likewise necessary in order to clarify<br />
misconceptions and explore certain topic areas. All lecture notes will be posted on my web<br />
site and they can be downloaded in PDF format. You should read the class notes before<br />
class.<br />
Class Attendance:<br />
Class participation is mandatory. A 5-point credit will be deducted from your “class<br />
attendance credit” for each additional class missed after allowable two absences. Class<br />
attendance is very important to your doing well in this class. Furthermore, you are<br />
responsible for knowing everything that happens in the class including announcements <strong>of</strong><br />
any changes in test dates that may be necessary.<br />
Homework Assignment:<br />
All homework assignments are due on the following Tuesday after the date <strong>of</strong> the<br />
assignment. Homework could be in the form <strong>of</strong> end-<strong>of</strong>-chapter problems, take home short<br />
projects, or take-home quizzes. Grade <strong>of</strong> late homework is subject to the following discount<br />
on a daily basis: 10% first day; 20% second day; 40% third day; 50% fourth day and after.<br />
No homework will be accepted after the solutions are posted on my web.<br />
Tests and Final Exam:<br />
There will be two tests during the semester and a final exam in the last week <strong>of</strong> the<br />
semester. All tests and final exam have two components: multiple choices and problem
solving. You are permitted to bring one 5 x 6 index card with anything you wanted<br />
written on it for the exam. Honor code is strictly enforced in the exam. Any cheating or<br />
attempt to cheat will automatically result in a failing grade in the course. You must turn<br />
in your exam when the time is over. I will not accept any exam that is turned in seconds<br />
late. The university policy requires that all students take final exam. Failure to comply<br />
with this policy may result in a failing grade in the course.<br />
Policy on Make-up Test & “Extra Credit”:<br />
You are expected to take tests and exam at the scheduled time. Make-up exams are rarely<br />
granted. Students who have to miss a test with legitimate reasons such as personal or family<br />
emergency may request in advance, in writing, for a make-up. Such written requests must<br />
be submitted before the scheduled test, and I will decide on the make-up date. I will not<br />
grant any “extra credit” for extra work; you have plenty opportunities to perform well in the<br />
class.<br />
Grading and Evaluation:<br />
Grading will be based on two tests, a final exam, class attendance credit, and homework<br />
assignments. The breakdown <strong>of</strong> the total points is:<br />
Tests & Exam: 100 points each; 300 points in total<br />
Homework assignments: 125 points<br />
Class attendance: 30 points<br />
Final course letter grades will be assigned to your weighted course average computed<br />
above, as follows:<br />
Letter Grade Quality Points Total <strong>Course</strong> Approximate<br />
Points<br />
Percentage Range<br />
A 4.00 432 - 455 95% - 100%<br />
A- 3.67 409 - 431 90% - 94%<br />
B+ 3.33 395 - 408 87% - 89%<br />
B 3.00 368 - 394 81% - 86%<br />
B- 2.67 355 - 367 78% - 80%<br />
C+ 2.33 341 - 354 75% - 77%<br />
C 2.00 318 - 340 70% - 74%<br />
C- 1.67 295 - 317 65% - 69%<br />
D 1.00 263 - 294 58% - 64%<br />
F 0.00 Below 263 Below 58%
Class Schedule<br />
Week Dates Subject Contents Chapter #<br />
1 8/22, 8/24 Introduction to the course<br />
Structure <strong>of</strong> options Markets<br />
2<br />
2 8/29, 8/31 Principles <strong>of</strong> options pricing<br />
Principles <strong>of</strong> options pricing: upper and lower limits<br />
<strong>of</strong> call and put prices, put-call parity<br />
3 9/5, 9/7 Binomial option pricing model<br />
4 9/12, 9/14 Binomial option pricing model<br />
Black-Scholes option pricing model<br />
5 9/19, 9/21 Black-Scholes option pricing model<br />
Test #1 (9/21)<br />
6 9/26, 9/28 Return and Review 1 st Test<br />
Basic Option Strategies<br />
7 10/3, 10/5 Basic Option Strategies<br />
Advanced Option Strategies<br />
8 10/10, 10/12 Mid-Term Break (10/10); no classes<br />
FMA Conference (10/12); no classes<br />
9 10/17, 10/19 Advanced Option Strategies<br />
Market Structure <strong>of</strong> Forward and Futures Markets<br />
10 10/24, 10/26 Market Structure <strong>of</strong> Forward and Futures Markets<br />
Principles <strong>of</strong> Forward , Futures Pricing & Options on<br />
Futures<br />
11 10/31, 11/2 Principles <strong>of</strong> Forward , Futures Pricing & Options on<br />
Futures<br />
Test #2 (11/2)<br />
12 11/7, 11/9 11/6: Last day to withdraw<br />
Return and Review 2 nd Test<br />
Futures Hedging Strategies<br />
3<br />
3<br />
4<br />
4<br />
5<br />
5<br />
6<br />
6<br />
7<br />
☺<br />
7<br />
8<br />
8<br />
9<br />
9<br />
10
Week Dates Subject Contents Chapter #<br />
13 11/14, 11/16 Futures Hedging Strategies<br />
Advanced Futures Strategies – Arbitrage, Implied<br />
Repo, Cost <strong>of</strong> Carry, Futures Spread, Stock Index<br />
Arbitrage<br />
14 11/21, 11/23 Advanced Futures Strategies – Arbitrage, Implied<br />
Repo, Cost <strong>of</strong> Carry, Futures Spread, Stock Index<br />
Arbitrage<br />
Thanksgiving Recess (11/23) – No classes<br />
15 11/28, 11/30 Advanced Futures Strategies – Arbitrage, Implied<br />
Repo, Cost <strong>of</strong> Carry, Futures Spread, Stock Index<br />
Arbitrage<br />
Swaps<br />
16 12/5 Swaps<br />
17 12/13 Final Exam (Wednesday; 2:30 – 4:20 p.m.)<br />
10<br />
11<br />
11<br />
☺<br />
11<br />
12<br />
12