NYU Stern School of Business

Undergraduate College

FINC-UB.0043.001 (C15.0043): FUTURES & OPTIONS

Fall 2011

Instructor Details

Figlewski, Stephen

sfiglews@stern.nyu.edu

8-0712

tba

KMEC 9-64


Professor Stephen Figlewski

Phone:   212-998-0712

E-mail:  sfiglews@stern.nyu.edu

Office:  MEC 9-64

Office hours:     TBA

                         

 

 

Course Meetings

MW, 9:30am to 10:45am

KMC 4-60


Final Exam:

Schedule exceptions
    Class will not meet on:
    Class will meet on:

 

Course Description and Learning Goals

Course description:  This course is designed to introduce Finance students to the theoretical and practical aspects of financial futures, options, and other derivatives. Over the last 35 years, the markets for these versatile instruments have grown enormously and have generated a profusion of innovative products and ideas, not to mention periodic crises.  Derivatives have become one of the most important tools of modern finance, from both the academic and the practical standpoint.  However, the subject matter requires relatively greater use of quantitative methods and theoretical reasoning than many other courses, and most students will find it quite challenging.

 

Course Pre-Requisites

All core courses. Some basic knowledge of futures and options is assumed.

 

Course Outline

THIS IS THE COURSE OUTLINE FROM FALL 2009, WHEN I LAST TAUGHT THIS COURSE.  OBVIOUSLY, THE DATES ARE OFF, BUT THE TOPICS WILL BE NEARLY ENTIRELY WHAT YOU SEE BELOW.  THE READINGS ARE FROM HULL'S TEXTBOOK(S).  WE WILL BE USING (AS AN ALTERNATIVE TEXT) A NEW BOOK WRITTEN BY SUNDARAM AND DAS.

 

COURSE OUTLINE

 

Hdenotes chapters in the Hull textbook. bh denotes chapters in "Baby Hull."

 

Session / Date

Topics

Reading/ Homework

1:  Weds, Sep 9           

Course overview;

Introduction to derivatives

Fundamental derivatives concepts

H1, H4

bh1, bh4

2:  Mon, Sep 14

Forward contracts

Hedging with forwards and with futures

Futures contracts and futures markets

H2

bh2

3.  Weds, Sep 16

Hedging in the absence of basis risk

Two key interest rate contracts

"Dollar Equivalence"

H3, H6

bh3, bh6

Homework #1 due

4.  Mon, Sep 21

"Statistical" hedging

Risk and return in a real world futures hedge

Finding the minimum risk hedge using regression

 

5.  Weds, Sep 23

Futures pricing: Expectations vs the Cost of Carry

Arbitrage, the key to derivatives pricing

H5

bh5

6.  Mon, Sep 28

Doing cash-futures arbitrage, both long and short

In-class market-making exercise-Part 1

 

Bring your calculator to class!

Homework #2-3 due

7.  Weds, Sep 30

In-class market-making exercise-Part 2

Bring your calculator to class!

8.  Mon, Oct 5

Stock index futures arbitrage

Important stock index futures strategies

 

9.  Weds, Oct 7

T-bond futures pricing; the cheapest to deliver bond Using interest rate futures

Homework #4 due

10.Mon, Oct 12

Introduction to Swaps

H7

bh7

 

Session / Date

Topics

Reading/Homework

11. Weds, Oct 14

Introduction to Options

H8,  bh8

Homework #5 due

12 Mon, Oct 19

Analyzing option positions

The covered call

H10

bh10

13. Weds, Oct 21

Put-call parity

Option price relationships from portfolio dominance

H9

bh9

14 Mon, Oct 26

Extending put-call parity

Option pricing:  The Binomial Model

H11

bh11

15. Weds, Oct 28

The Binomial Model, continued

H19.1 - H19.5

bh16

16 Mon, Nov 2

Option pricing:  The Black-Scholes Model

H12, H13

bh12

17. Weds, Nov 4

Delta hedging and other Greek letters

In-class option hedging problems

H17

bh15

Bring your calculator to class!

Homework #6 due

18 Mon, Nov 9

Volatility

The implied volatility smile and term structure

H18, H21

bh17

19 Weds, Nov 11

Variations on a theme: Options on futures, FX, and interest rates

H15, H16

bh13, bh14

Homework #7 due

20. Mon, Nov16

Stock index options

Strategies for portfolio protection

 

 

 

Session / Date

Topics

Reading/Homework

21 Weds, Nov 18

Caps, floors and other interest rate options

Models for interest rate processes

H28, H30

bh19

22 Mon, Nov 23

Caps, floors and other interest rate options

Models for interest rate processes, continued

H31

Homework #8 due

23 Weds, Nov 25

Mortgages and mortgage-backed securities

Monte Carlosolution techniques

H19.6-19.7

24 Mon, Nov 30

Credit risk and credit derivatives

H22, H23

bh21

25. Weds, Dec 2

Credit risk and credit derivatives, continued

Homework #9 due

26. Mon, Dec 7

Value at Risk

Real options

H20, H33

bh18, bh20

27. Weds, Dec 9

Exotic options

Structured products

Derivatives disasters

H24, H34

bh20, bh23;

excerpt from F.I.A.S.C.O.

28. Mon, Dec14

Overflow / Review

 

 

Required Course Materials

Reading

The material in this course is conceptually difficult, the pace is rapid and advanced concepts build quickly upon each other.  Students should make sure they master the basics as they are presented, by reading the textbook, doing exercises, working with the TA, etc.--i.e., whatever it takes.  It is very helpful to do the reading before the class in which it will be discussed.

 

Textbook:

(H) Hull.  Options, Futures, and Derivative Securities, 7th ed.  Prentice-Hall, 2008.

 

This textbook is the industry standard reference.  It is "everything you might ever want to know about derivatives."  It is hard reading, especially for non-mathematicians, but worth the effort.  Learn everything in Hull, and you will have an outstanding grasp of the subject.

 

ALTERNATIVE TEXTBOOK:  Hullhas a lower level version of his textbook, often known as "Baby Hull."  It covers most of the same material, but with less mathematical rigor.  You can use the lower level book, if you prefer. 

 

(bh) Hull.  Fundamentals of Futures and Options Markets, 6th ed.  Prentice-Hall, 2007.

 

 

Other required materials:

All class materials, including class notes, homework assignments, spreadsheets, sample problems and exams, will be available for downloading from the course website.  Lecture notes and assignments will also be distributed in class.

 

Computer: 

A working knowledge of Excel is a requirement for the course.  Much of the homework will require use of a spreadsheet program.  However, following Stern School standard policy,  computers, Blackberries, smartphones, etc., are NOT permitted in class.  They are too distractive, for the user and for others.

 

Calculator: 

You will need a calculator for quizzes.  It should be a "scientific" calculator, with  x y  and  log  functions, but nothing fancier than that is required.  A calculator with more functionality than is needed costs less than $20.

 

Assessment Components

Grading:

 

 

 

The typical grade distribution is:  A, A-  25-35% ;   B+, B, B-  55-65% ; C+ and below 5-15%  This generally conforms to the Finance Department norm.  The course grade will be based on demonstrated mastery of the material, not on how hard the student has worked.

 

Homework answers will be posted on the course website one week after an assignment is due.  Late homework will not be accepted once the answers have been posted.

 

 

 

TA / Tutor / Grader: The TA for the course, <to be named later>, will hold regular office hours.  Times and place will be announced.

 

Grading

At NYU Stern we seek to teach challenging courses that allow students to demonstrate their mastery of the subject matter.  In general, students in undergraduate core courses can expect a grading distribution where: 

Note that while the School uses these ranges  as a guide, the actual distribution for this course and your own grade will depend upon how well  you actually perform in this course.

 

Professional Responsibilities For This Course

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

 

Academic Integrity

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.

 

Recording of Classes

Your class may be recorded for educational purposes

 

Students with Disabilities

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.

 

Stern Policies

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.

 

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