OPTIONS AND FUTURES MARKETS
Description
This course covers forwards, futures, swaps, and options. By the end of the course, students will have good knowledge of how these products work, how they are used, how they are priced, and how financial institutions hedge their risks when they trade the products. More advanced material on derivative products and risk management is covered in later electives.
Required Readings
Hull, John C. Options, Futures, and Other Derivatives, 9th Edition,
Hull, John C. Solutions Manual for Options, Futures, and Other Derivatives, 9th Edition, Assignments
There are three hand-in assignments during the semester:
Assignment 1: 1.35, 1.36, 2.31, 2.33, 3.31, 3.32, 4.34, 4.35 (due week 5)
Assignment 2: 5.31, 5.33, 6.31, 7.23, 7.24, 8.16, 9.12, 10.28, 11.25 (due week 9) Assignment 3: 12.24, 13.25, 15.28, 15.30, 16.16, 17.28, 17.30, 18.25, 19.24, 19.25, 19.27 (due week 14)
Assessment
Assignment 1 15%
Assignment 2 15%
Assignment 3 20%
Final Exam 50%
The final examination will not be open book. You will be permitted a two-sided “cheat
sheet” with notes and/or formulae.
Schedule
Week 1: Introduction and mechanics of futures Markets; Chapters 1 and 2
Week 2: Hedging strategies using futures; Chapter 3
Week 3: Interest rates; Chapter 4
Week 4: Determination of forward and futures prices; Chapter 5
Week 5: Interest rate futures; Chapter 6
Week 6: Swaps; Chapter 7
Week 7: Securitization and the Credit Crisis and OIS Discounting, Chapter 9
Week 8: Mechanics of option markets and properties of options; Chapters 10 and 11 Week 9: Trading strategies involving options and binomial trees; Chapters 12 and 13 Week 10: The Black-Scholes-Merton model; Chapter 15 (excl. 15.6)
Week 11: Employee stock options; Chapter 16
Week 12: Options on stock indices, currencies and futures; Chapters 17 and 18
Week 13: The Greeks; Chapter 19
Week 14: Volatility smiles; Chapter 20
Week 15: Review of course; Chapter 36