MW, 9:30am to 10:45am
Tisch T-201
Final Exam:
Schedule exceptions
Class will not meet on:
Class will meet on:
The course is a rigorous, quantitative introduction to financial market structure and financial asset valuation. The main topics of the course are arbitrage, portfolio selection, equilibrium asset pricing (CAPM), fixed income securities, and derivative pricing. There is a small section on project valuation.
You are expected to understand valuation formulas and be able to apply them to new problems. The appropriate tools necessary for solving these problems will be developed at each stage and practiced in the homework assignments. The models we will cover have immediate applications and implications for real-world financial decisions.
Students must be comfortable with statistics, linear algebra, calculus, and microeconomics. Students are strongly encouraged to study the review handout on statistics located at the end of the course pack.
Below is a detailed schedule of the date and topic of each class. Required readings are indicated as RR, suggested readings as SR. The
readings starting with ’H’ are handouts, situated at the end of your course packet.
Class 1: Financial Instruments (W 09/08)
Overview of class RR: Syllabus
Financial Instruments RR: BKM 1.1-4, SR: BKM 1.5-7, 2
Class 2: Financial Markets (M 09/13)
Financial Markets RR: BKM 3.1-3, 3.5, 3.7 SR: BKM 3.4, 3.6, 3.8
Class 3: Performance of Securities (W 09/15)
PV, FV, annuities, perpetuities RR: RWJ 4, 5.1-2, H1-2
Class 4: Performance of Securities (M 09/20)
Compounding and Return measures RR: RWJ 5.3-4, BKM 5.1-2,5.4, H3-5 SR: BKM 5.3
Class 5: Portfolio Theory (W 09/22)
Positions and Portfolio Returns RR: H6-8, BKM 5.5
Efficient Portfolios with Two Risky Securities RR: BKM 6.1-2, H9
Class 6: Portfolio Theory (M 09/27)
Efficient Portfolios with Two Risky Securities RR: BKM 6.1-2, H9
Optimal Portfolios and Investor Preferences RR: BKM 5.2
Class 7: Portfolio Theory (W 9/29)
Efficient and Optimal Portfolios with Riskless Asset RR: BKM 5.5-6, 6.3-4
Class 8: Portfolio Theory (M 10/04)
Efficient and Optimal Portfolios w/ Multiple Risky Assets RR: BKM 6.4-5, H10-11 SR: BKM 6.6
Introduction to Capital Asset Pricing Model RR: BKM 7.1
Class 9: Capital Asset Pricing Model (W 10/6)
The Capital Asset Pricing Model RR: BKM 7.1-2, H12
Class 10: Capital Asset Pricing Model (W 10/13)
Applications of the CAPM RR: BKM: 7.4-5, H13-14 SR: BKM 7.3
Class 11: Beyond the Capital Asset Pricing Model and Market Efficiency (M 10/18)
Beyond the CAPM RR: BKM: 7.3-5
Market Efficiency RR: BKM 8 SR: BKM 9
Class 12: Review (W 10/20)
Pre-midterm review
Class 13: Midterm (M 10/25)
Midterm exam.
Class 14: Equity Valuation (W 10/27)
Dividend Discount Models and Valuation Ratios RR: BKM 13:1- 4, H16-17 , SR: BKM 13.5-Class 15: Equity Valuation (M 11/1)
Class 15: Equity Valuation (M 11/1)
Dividend Discount Models and Valuation Ratios RR: BKM 13:1-4, H16-17 , SR: BKM 13.5-Midterm evaluation (20 mins)
Class 16: Arbitrage (W 11/03)
Arbitrage and the Law of One Price RR: H15
Class 17: Fixed Income Securities (M 11/08)
Bond Prices and Yields RR: BKM 10:1- 4, H18-19, SR: BKM 10.5
Class 18: Fixed Income Securities (W 11/10)
Bond returns, Forward Rates, and Yield Curve Theories RR: BKM 10.6, H20-22
Class 19: Fixed Income Securities (M 11/15)
Yield Curve Theories and Duration RR: BKM 11.1-3, H23-24 SR: BKM 11.4
Class 20: Options (W 11/17)
Options Basics and Strategies RR: BKM 15.1-2, H25-26
Class 21: Options (M 11/22)
Options Strategies and Minimum Value RR: BKM 15.2, 16.1, H26-27 SR: BKM 15.3-4
Class 22: Options (W 11/24)
Options Strategies and Minimum Value RR: BKM 15.2, 16.1, H26-27 SR: BKM 15.3-4
Class 23: Options (M 11/29)
Black-Scholes Option Pricing Formula RR: BKM 16.2-4 SR: BKM 16.5
Class 24: Options (W 12/1)
Black-Scholes Option Pricing Formula RR: BKM 16.2-4 SR: BKM 16.5
Class 25: Futures (M 12/06)
Futures RR: BKM 17.1, 17.3-5, H28 SR: BKM 17.2
Class 26: Futures and Swaps (W 12/08)
Futures and swaps RR: BKM 17.1, 17.3-5, H28 SR: BKM 17.6
Class 27: TBA (M 12/13)
Class 28: Review (W 12/15)
Pre-final review
Final Exam (W 12/22)
Readings
The textbooks for this class are:
We will mainly use [1], abbreviated BKM below. If you have an earlier edition of BKM (seventh or sixth), you are fine. There are only minor changes between editions. Page and chapter numbers may vary though. If you use an older edition it is your responsibility to find out the differences with the latest edition. Book [2] will come in handy to solve practice questions. We will only use chapters 5 and 6 from book [3], abbreviated RWJ. These two chapters come as a supplement in the class material packet if you purchased your class material through the bookstore. The supplement [3] will only be used in classes 3 and 4.
If you did not buy [1] through the bookstore, you can purchase [3] separately on the publisher's web site. Go to https://ebooks.primisonline.com. Click on “Custom eBooks" and follow the links. After selecting New York University you will find an option named “B01.2311-Prof. van Niuewerburgh”. Item [3] has ISBN: 0-390-169501, price: $14.63
The main role of the textbooks is to serve as a source where you can review the material. BKM is at times very good and tightly linked to the material I cover, but the link to the material I cover in class is a bit weaker on some other topics. That being said, it is currently the best book on the market for our purposes, and you will need it to prepare before class and go over the material after class.
Additionally I will post on Blackboard the course powerpoint slides that I use in class, handouts with important material, problem sets, and practice exams. You will want to take notes during class; the handouts are there to alleviate the amount of writing you need to do.
Staying Up-to-Date
The class web site on Blackboard contains links to recent articles in the nancial press that complement the lectures. You are encouraged to follow financial and macroeconomic news in the Financial Times, Wall Street Journal, or The Economist. If you encounter an interesting article that you would like to share with the class, send me an email and I will post it on the class web site. This section of the Blackboard site is regularly updated during the semester.
Calculator and Excel
You need a calculator for this class. Make sure to bring yours to every lecture. It is a distinct advantage to have a financial calculator. If you plan to take other finance classes, you will get good use out of a financial calculator anyways.Standard financial calculators include the HP 12C, the HP 10B-II and the TI
BA-II Plus. You are expected to learn how to operate the calculator on yourown. However, you can get help by attending the teaching assistants’ office
hours. I have included some useful slides on Blackboard on how to work withthe calculator.
Every student of Stern is expected to be comfortable with EXCEL tools. In particular any Finance area major is expected to have a knowledge of these tools that extends beyond familiarity to an individual awareness of the uses and limitations of this technology.
Communication
The class web site is on Blackboard at http://www.sternclasses.nyu.edu/. This is the central location where all teaching materials are posted. TA office hours and class announcements will be posted here. Problem sets are posted there as well. Solutions to the problem set will be posted no later than one week after the due date; they will not be distributed in paper form in class.
The class web site also contains the concept questions (see below), suggested problems, and some nance links and articles. Finally, there is a discussion board where the TAs and myself will participate on a regular basis to answer your questions. You are encouraged to answer each others' questions. If you have a question, first turn to the discussion board; chances are the question has been asked and answered there already.
Exams
The midterm and final exams test your understanding of the key concepts in the class. They do not test your ability to memorize or to use your calculator. Rather they probe your deeper understanding of the material. As a result, they may be more challenging than the exams you are used to. To prepare for these exams, you should review the slides together with your own class notes, the handouts (at the end of the course pack), the concept questions, the required readings, the problem sets, the sample exams (located in your course pack behind the homework), and preferably the suggested problem sets and suggested readings. The final exam is cumulative. You will be allowed one double-sided page of notes at the midterm exam and two double-sided pages of notes at the final exam. The sheets must be no larger than 8.5 inch by 11 inch. There are no restrictions on the content of the formula sheets, except that you are not allowed to reprint my Powerpoint slides verbatim. You will be asked to turn in these formula sheets after the midterm and exam, but you will be able to recover the midterm sheet in the week after the midterm.
You are not allowed to take the exam questions home, and no written answers will be provided. There will be a post-midterm discussion. Once graded, you are allowed to come visit your midterm in my office, during office hours, or by appointment. The same rules apply to the final. If you must miss an exam, you will be required to make it up after the semester is over. No laptops or PDAs are allowed on the exam.
Due to University regulations as confirmed through the Dean's office, students must take the final examination with their assigned Section. Unfortunately, the Professor has no discretion on this matter.
Concept Questions
After every class, concept questions are posted on Blackboard under course documents. The concept questions test your understanding of the main concepts
taught in the class of that day. Usually, there are between 3 and 10 multiple choice questions per test. After you have reviewed the material from class, it should take you no more than 10 minutes to complete these concept questions. Every concept test is available for ten days, starting from the time the class ends.
Participation in the concept questions counts towards your participation grade (it is half of your participation grade). However, I will not keep track of whether you answered the questions correctly or not. Basically, the concept questions are good preparation for the exam and a device that gives you an extra incentive
not to fall behind.
Problem Sets
There will be several problem sets over the course of the semester. Each problem set contains 1 excel question, emphasizing a practical implementation of a concept. The problem sets are graded on a 3 point scale. Late problem sets will not be accepted. You are encouraged to work in groups on the problems, but you must hand in your own copy and you are asked to acknowledge any help you received on the front page of your copy. The homework questions will be in the same spirit of the exam questions, but slightly easier.After all, they are your first encounter with the implementation of the material.
Suggested Problems
Suggested problems are posted on Blackboard under Assignments. These questions are intended you give you extra practice over and above the homework. You do not have to turn them in, and there is no credit for them. You can look up solutions in your solution manual [2]. The solutions to the questions in the RWJ booklet (class 2) are included in your course pack. Practice makes perfect: You are strongly encouraged to take the suggested problems seriously.
Study Groups
It is highly recommended that you regularly review the class material in your study group. Don't wait until exam time to meet with your group. By then it's too late.
Final Remarks on Performance
This class is both exciting and demanding based on the quality and quantity of the covered material. Students who do well in this class typically do all ofthe following:
Guidelines for Group Projects
Business activities involve group effort. Consequently, learning how to work effectively in a group is a critical part of your business education.
Every member is expected to carry an equal share of the group’s workload. As such, it is in your interest to be involved in all aspects of the project. Even if you divide the work rather than work on each piece together, you are still responsible for each part. The group project will be graded as a whole: its different components will not be graded separately. Your exams may contain questions that are based on aspects of your group projects.
It is recommended that each group establish ground rules early in the process to facilitate your joint work including a problem-solving process for handling conflicts. In the infrequent case where you believe that a group member is not carrying out his or her fair share of work, you are urged not to permit problems to develop to a point where they become serious. If you cannot resolve conflicts internally after your best efforts, they should be brought to my attention and I will work with you to find a resolution.
You will be asked to complete a peer evaluation form to evaluate the contribution of each of your group members (including your own contribution) at the conclusion of each project. If there is consensus that a group member did not contribute a fair share of work to the project, I will consider this feedback during grading.
Grades will be based on the final exam (45 percent), the midterm exam (30 percent), problem sets (15 percent) and class participation (10 percent). Class participation is strongly recommended as it will be accounted for in the determination of the final grade.
The participation grade consists of class participation and attendance (50 percent) and participation in the concept questions on Blackboard (50 percent). Inappropriate classroom behavior (such as coming late, disrupting the class, etc.) will negatively affect your final grade.
At Stern, we want to ensure fair and consistent grading across core courses. As such, grades for this course will be distributed following the Stern Grading guidelines for Core Courses at the Undergraduate College.
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.
Attendance
Participation
In-class contribution is a significant part of your grade and an important part of our shared learning experience. Your active participation helps me to evaluate your overall performance.
You can excel in this area if you come to class on time and contribute to the course by:
Assignments
Classroom Norms
General Behavior
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
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.