Description

This is a masters-level course in the valuation and pricing of derivatives. We will study futures, swaps and options markets and derive pricing formulas for various classes of underlying assets and in a variety of cirumstances. We will dedicate a good portion of the course to pricing options, including a derivation of the Black-Scholes pricing formula, and will then study the implications for volatility estimation. The course content will contain much of the material related to derivatives that is tested on the CFA level-II exam.

Programming

We will use the R programming language to work with data and to solve problems. R is a free software environment used by academic and professional researchers in statistics. Learning R will be a major benefit to you in your graduate studies and in your post-graduation career.

Course Materials

There is no required textbook for the course. I will make my lecture notes available on this website. However, my notes will closely follow the textbook Options, Futures and Other Derivatives by John Hull. While I do not require that you purchase the text, I do recommend that you obtain a copy if possible, as the reading will help you gain a much greater depth of understanding and will assist you in preparing for assignments and exams.

Assignments

There will be four assignments, due every second Tuesday, starting in the third week of the quarter: 16 April, 30 April, 21 May and 4 June. Late assignments will not be accepted and extensions will not be granted.

Exams

There will be two exams:

• Miderm: Tuesday, 7 May 2019, in class.
• Final: Tuesday, 11 June 2019, Noon - 3:00 p.m.

There will be no make-up exams - it is your responsibility to arrange your schedule to be present for the exams.

Grading

Assignments: 35%; Mid-Term Exam: 30%; Final Exam: 35%. I will curve grades only at the end of the semester if the distribution is low enough and/or spread out enough. It is important for me to emphasize that curving will never hurt your grade - it will only work to your advantage.

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