Syllabus, Eco 27500, Spring 2010

Options and Futures

Monday & Wednesday 11  12:15 NAC 4/108

 

 

Course Description

 

This course is designed to teach you the economics of the valuation of options, futures, and related financial instruments.  After a terrible global economic and financial crisis, spread by the financial derivatives that we'll be studying, this is a terrific time to take this course on Options & Futures.  You'll be learning the necessary skills to understand current events.  Given the timing, the course must cover not only what financial derivatives are supposed to do but also what they actually were used for.  Students need to understand that these financial tools can be used for both good and bad; they can mitigate or heighten risk; they can help firms survive difficult times or they can ruin established institutions.  In previous times of economic and financial crisis, there have been other financial instruments that were blamed, whether REITs or junk bonds or computer-driven trading.  Each innovation has now become an established part of the financial toolbox.

 

Textboook

 

This course will use the textbook by John C Hull, Options, Futures, and Other Derivatives, 7th Edition, Prentice Hall. If you have an earlier edition, you are responsible for ensuring the concordance to the most recent edition. You may wish to get the accompanying study guide, but it is not necessary.

 

Professor

 

Kevin R. Foster, Department of Economics, The City College of New York, kfoster@ccny.cuny.edu, w: (212) 650-6201, m: (860) 593-7674, office hours Wednesday 1-3 pm or by appointment, http://www.ccny.cuny.edu/social_science/kfoster/

 

Course Requirements/Prerequisites

 

This course will assume that you've taken (and remember!) the prerequisites including Calculus (can find a derivative), Statistics (go back and review mean, variance/standard error, and pdf/cdf), Corporate Finance and Investments (time value of money).

 

Educational Outcomes

 

Students will be able to apply mathematically rigorous analysis to the pricing of options and futures; evaluate the Black-Scholes-Merton theories of option pricing as well as the "Greeks" against empirical findings within finance and economics and analyze the costs and benefits of these risk-mitigation securities.

 

Grading

 

Course grades are determined by three factors: your scores on the final and the midterm, and your scores on the homework assignments.  The final and midterm each have a 35% weight and homework gets 30%.  There is no "bullshit" factor of effort or any other unobservable will-o-wisps  the weightings sum to 100.  Your grade is determined entirely on observed performance.

 

You have the option of forgoing the homework assignments and having your grade determined only by exams.  This is unwise.  You must submit the online form to me early in the semester.

 

Grades will be posted on the class internet page, so that you can check your progress and determine what grade you can expect to receive. In this public grade posting, you will be identified only by the last 4 digits of your ID number (if you wish to choose some other 4-digit identifier, talk with me).

 

Course Material

 

Homework and basic course documents will be on the class page, publicly accessible from my web page (http://www.ccny.cuny.edu/social_science/kfoster/).  Readings and some other material will be available on the Blackboard course page (login required).  I will periodically send emails to the class via Blackboard so you must keep your CCNY email updated.

 

 

Weekly Topics:

Options & Futures, Eco 275, Spring 2010

Kevin R Foster, CCNY

 

 

Week

Date

Topics

Chapter(s) in Hull

1

Feb 1, 3

Introduction

1, 2

2

Feb 8, 10

Interest Rates

3, 4

 

Feb 15

No class

 

3

Feb 17

Future & Forward Prices; More Rates

5, 6, 7

 

Feb 22, 24

Basics of Options

8, 9

4

Mar 1, 3

Trading Strategies

10

5

Mar 8, 10

Binomial Trees

11

6

Mar 15, 17

 

 

7

Mar 22, 24

Review; Exam on 24th

Ch 1-11

 

Mar 29, 31, Apr 5

No class

 

8

Apr 7

Statistics and Matlab

additional reading

9

Apr 12, 14

Wiener Processes & Itô's Lemma

12

10

Apr 19, 21

Black-Scholes-Merton Formula

13

11

Apr 26, 28

more on B-S-M

additional reading

12

May 3, 5

The Greeks

17

13

May 10, 12

Value at Risk (VaR)

20

14

May 17

Credit Risk & Credit Derivatives

22, 23

 

sometime May 19-25

Final Exam

comprehensive


Chapters refer to John C Hull, Options, Futures, and Other Derivatives, 7th Edition, Prentice Hall.

Deviations from the schedule will be announced in class.

The exam dates are given above. You must take the exams at the scheduled times. No excuses are acceptable.

 

 

 

Academic Integrity

 

The CCNY Faculty Senate has recommended that every course syllabus include this notice:

CUNY Policy on Academic Integrity

As stated in the CUNY Policy on Academic Integrity: 'Plagiarism is the act of presenting another person's ideas, research or writings as your own. The following are some examples of plagiarism: