TR, 2:00pm to 3:15pm
Class will not meet on: Sep. 18 2012
Class will meet on: TBD
Course Description: This course consists of two parts. The first part of the course deals with the structure of futures markets, pricing of futures contracts and hedging with such contracts. The second part of the course deals with options markets; strategies, pricing and position analysis. It includes topics like: the Financial Crisis, Short Selling, Value at Risk, Exotic Options, and Trading Volatility. The course will consist of lectures, discussions and problem solving.
All core courses. Some basic knowledge of futures and options is assumed.
Required Textbook: Hull (H): Fundamentals of Futures and Options Markets. Prentice Hall, 2011.
I. Futures Markets
1. Forward and Futures: Overview (H: pp. 1 – 5)
2. The Structure of the Futures Markets (H: Ch. 2)
a) Trading; Clearing and Delivery
b) Marking to Market and Margins
3. The Cost of Carry Model
a) Arbitrage Pricing (H: Ch.5; 5.1-5.7)
b) Stock Index Arbitrage and Currency Futures (H: 5.10, 5.09, 5.11)
4. Hedging with Futures (H: Ch.3; 3.1-3.4)
II. Options Markets
1. Options Strategies and Markets (H: Chs. 9, 11)
2. Options Valuation
a) Arbitrage Conditions (H: Ch.10; 10.1-10.3, 10.5)
b) Put-Call Parity (H: 10.4, 10.7)
c) The Binomial Model (H: Ch.12; 12.1-12.8)
d) The Black-Scholes-Merton Model (H: Ch. 13)
e) The Greek Letters (H: Ch. 17; 17.1-17.11)
3. Implied Volatility and “Smiles” (H: Ch.19)
4. Value at Risk (H: pp. 429-432)
5. Exotic Options (H: pp. 481-487)
5. Trading Volatility (class notes)
Required Material: You are responsible for the material covered in class, handed out in class and sent to you by e-mail, including readings from the financial press. The problem sets and all handouts are part of the class material.
Required book: John Hull (H) Fundamentals of Futures and Options Markets, Prentice Hall, 2011
Market Tracking: You are expected to follow the markets on a daily basis and be able to answer basic questions regarding ‘fair value’ for futures contracts and implied volatility from options contracts. Specifically, follow the SPX futures, NDX futures, SPY Options, QQQQ Options. You are expected to read the daily financial press (WSJ, FT); the futures and options columns.
Exams; Midterm and Final.
Problem Sets: Provided on Blackboard. There will be 7-8 problem sets. Solutions to the problem sets will be provided after you have had a chance to solve them. Additional problems will be presented and discussed in class. Problem sets will not be collected and are not part of the final grade.
There will be two multiple-choice exams, a midterm and a final. The final grade will be based on the following weights; 30% midterm, 70% final. Class participation may improve your grade. The grade distribution is: A (25%-35%), B (50%-60%); C (5%-15%); D,F (remainder). If one gets a higher grade on the final exam, then the midterm will have a weight of 20% and the final will get 80%. There are no make-up exams for the mid-term.
The process of assigning grades is intended to be one of unbiased evaluation. Students are encouraged to respect the integrity and authority of the professor’s grading system and are discouraged from pursuing arbitrary challenges to it.
If you believe an inadvertent error has been made in the grading of an individual assignment or in assessing an overall course grade, a request to have the grade re-evaluated may be submitted. You must submit such requests in writing to me within 7 days of receiving the grade, including a brief written statement of why you believe that an error in grading has been made.
Class Attendance: Students are expected to attend all classes and be on time.
No late admittance.
Laptop usage is not allowed in class. Cellphones must be silenced.
Honor Code: You are responsible for maintaining Stern's honor code.
The School expects that students will conduct themselves with respect and professionalism toward faculty, students, and others present in class and will follow the rules laid down by the instructor for classroom behavior. Students who fail to do so may be asked to leave the classroom.
Collaboration on Graded Assignments
Students may not work together on graded assignment unless the instructor gives express permission.
Course evaluations are important to us and to students who come after you. Please complete them thoughtfully.
Integrity is critical to the learning process and to all that we do here at NYU Stern. As members of our community, all students agree to abide by the NYU Stern Student Code of Conduct, which includes a commitment to:
The entire Stern Student Code of Conduct applies to all students enrolled in Stern courses and can be found here:
Undergraduate College: http://www.stern.nyu.edu/uc/codeofconduct
Graduate Programs: http://w4.stern.nyu.edu/studentactivities/involved.cfm?doc_id=102505
To help ensure the integrity of our learning community, prose assignments you submit to Blackboard will be submitted to Turnitin. Turnitin will compare your submission to a database of prior submissions to Turnitin, current and archived Web pages, periodicals, journals, and publications. Additionally, your document will become part of the Turnitin database.
Your class may be recorded for educational purposes
If you have a qualified disability and will require academic accommodation of any kind during this course, you must notify me at the beginning of the course and provide a letter from the Moses Center for Students with Disabilities (CSD, 998-4980, www.nyu.edu/csd) verifying your registration and outlining the accommodations they recommend. If you will need to take an exam at the CSD, you must submit a completed Exam Accommodations Form to them at least one week prior to the scheduled exam time to be guaranteed accommodation.