“Educating for Personal and Professional Achievement”
Spring 2014 Semester, Sec. 01, TR 11:10-12:35pm, CRN: 21131, CV Starr 104
INSTRUCTOR ’ S NAME Dr. Ehsan Nikbakht, CFA, FRM
OFFICE HOURS
LOCATION OF OFFICE
PHONE EXTENSION ON CAMPUS
E-MAIL ADDRESS:
GENERAL INFORMATION
Location of Department Office
Telephone number of Department
Department Chairperson
12:40 PM to 2:10 PM
116A Weller Hall
463-5679
FINEZN@HOFSTRA.EDU
221 Weller Hall
463-5698
Dr. K.G. Viswanathan, CFA
DESCRIPTION OF COURSE
Analysis of options and futures contracts traded worldwide. Topics include the organization and structure of markets in which they are traded; ethical considerations faced by market participants; effect of recent computer advances on futures and options markets; pricing futures and options; hedging applications; the role of price discovery; and speculative strategies. Although particular emphasis is on financial futures and options, commodity futures and options are also discussed.
PREREQUISITE: FIN 132
READING SOURCES a.
Textbook: Hull, John. “ Fundamentals of Futures and Options Markets”, 8th ed. (2013),
Prentice Hall, ISBN-10: 0132993341, ISBN-13: 9780132993340. b.
Supplemental Readings: All students are expected to read the financial press ( The Wall
Street Journal, Barrons, The Financial Times, The NY Times , (business section) etc.) I will assign additional supplemental readings thru Blackboard. c.
Excel is used extensively
PROGRAM-WIDE LEARNING GOALS
Each student will be able to apply critical thinking skills for effective decision making.
Specific Objectives
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Each student will apply appropriate methods for solving problems, and/or formulate well-supported conclusions or solutions.
Each student will be able to understand the issues of the contemporary global business environment.
Specific Objective
Each student will demonstrate an understanding of contemporary global concepts/practices.
INSTRUCTOR’S COURSE -SPECIFIC LEARNING GOALS
The main goals of this introductory elective course are listed below: a.
Learn the concept of risk and differentiating among different types of risk b.
Learn to explain and use different types of derivatives as tools for risk management c.
Apply various hedging techniques through examples d.
Lean to price selected derivatives including options, futures, and swaps e.
Use Bloomberg terminals and Excel to produce risk and hedging reports
SCHOOL OF BUSINESS POLICY ON MAKEUP EXAMINATIONS
To be eligible for a makeup examination, a student must submit to the instructor written documentation of the reason for missing a scheduled examination due to medical problems or death of an immediate family member. The instructor (not the student) determines whether and when a makeup is to be given. If a makeup examination is to be given, the instructor will determine the type of makeup examination. If the student misses (for any reason) the scheduled makeup examination, additional makeups are not permissible.
UNIVERSITY POLICY ON INCOMPLETE GRADES
When requested by the student, the instructor may grant, at her/his discretion, a grade of Incomplete
(INC). An INC grade should be given only when unforeseen circumstances prevent the student from completing course work on time. By the last day of the normal grading period for the semester, the instructor must submit an INC grade online. In unusual circumstances, the faculty member may submit an INC grade online without prior discussion with the student. The instructor will decide the time frame in which the student will complete the required course work. However, this time frame may not exceed the last day of the next full semester following the granting of an INC grade.* In cases where lab work is required or the student is working on an Independent Study, additional time may be granted. A student will not be allowed to attend the regular class meetings at the next offering of the course. The instructor will clearly state online the grade the student will receive if the contracted work is not completed.
The instructor is required to submit a grade for the student within 30 days after the student has submitted work to fulfill the terms specified. If the instructor cannot oversee the completion of the incomplete work with the student, the instructor will arrange for oversight within the department with the Dean’s permission. If the incomplete work is not completed by the contracted deadline, the INC grade will convert to the grade stated by the instructor online.
* Students must complete all required course work in order to graduate. Candidates for graduation requesting an INC grade will graduate at the May or December commencement following the deadline specified in the Incomplete Grade Form.
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UNIVERSITY POLICY ON ACADEMIC HONESTY
Academic dishonesty is a serious ethical and professional infraction. “Hofstra University places high value upon educating students about academic honesty. At the same time, the University will not tolerate dishonesty, and it will not offer the privileges of the community to the repeat offender.”
Please refer to the Undergraduate Policy at http://www.hofstra.edu/pdf/Faculty/Senate/senate_FPS_11.pdf
for details about what constitutes academic dishonesty, including plagiarism, and Hofstra’s procedures for handling violations.
DEPARTMENT STATEMENT ON ACADEMIC HONESTY
The Department of Finance is dedicated to maintaining the highest level of academic honesty in all of its classes. The University Policy on Academic Honesty states that expulsion from the University is a possible punishment for academic dishonesty. The University Policy also states that students “must avoid not only cheating, but the very appearance of cheating.” Activities such as looking at the examination of another student, talking, or passing notes during examinations give the appearance of cheating, and therefore will be regarded as cheating. Submission of assigned work that is identical in any abnormal way to the work of another student is subject to reasonable interpretation as cheating.
Students knowingly providing work to others are as guilty of cheating as those who accept their work.
(For further information on academic honesty, please refer to the “
Policy on Academic Honesty” in the Hofstra University General Bulletin.
)
STUDENT WITH DISABILITIES STATEMENT
If you believe you need accommodations for a disability, please contact Services for Students with
Disabilities (SSD). In accordance with Section 504 of the Rehabilitation Act of 1973 and the
Americans with Disabilities Act of 1990, qualified individuals with disabilities will not be discriminated against in any programs, or services available at Hofstra University. Individuals with disabilities are entitled to accommodations designed to facilitate full access to all programs and services. SSD is responsible for coordinating disability-related accommodations and will provide students with documented disabilities accommodation letters, as appropriate. Since accommodations may require early planning and are not retroactive, please contact SSD as soon as possible. All students are responsible for providing accommodation letters to each instructor and for discussing with him or her the specific accommodations needed and how they can be best implemented in each course.
For more information on services provided by the university and for submission of documentation, please contact the Services for Students with Disabilities, 212 Memorial Hall, 516-463-7075.
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POLICIES ON ATTENDANCE, INCOMPLETE GRADES, AND WITHDRAWALS
Attendance: Required and will be monitored on a regular basis. Both the mid-term and final exams are mainly geared towards class discussion, assignments and the materials covered and emphasized in class; therefore, your attendance is critical for a successful completion of this course.
Withdrawals: Please follow the university policy.
METHODS OF EVALUATING STUDENTS
A course grade is determined based on the following criteria:
Midterm
Final Cumulative
Projects including
30%
40%
Excel, Bloomberg, Class participation 30%
Note: Weekly preparation and active class participation are required for a successful completion of this elective course.
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Week
CALENDAR
Date Topic
M 1/27 All Classes Begin
Assignment
1
2
3
4
5
T 1/28 Introduction to the course;
Administrative Info; Forming Groups
R 1/30
T 2/4
Chapter 1
Chapter 8
N/A
Be prepared for class discussion, please.
Odd numbered problems
(ONP) 1-15
ONP 1-15 R 2/6 Chapter 8
T 2/11 Chapter 8 and Use of Bloomberg data ONP 1-15
R 2/13 Chapter 9 ONP 1-15
T 2/18 Chapter 9 ONP 1-15
R 2/20 Chapter 9 and Use of Bloomberg data ONP 1-15
T 2/25 Case Study: Hedging a portfolio through options
R 2/27 Chapter 10
Be prepared for class discussion, please.
ONP 1-15
6
7
8
9
10
11
12
13
T 3/4 Chapters 10, 11
R 3/6 Chapters 10, 11
T 3/11 Chapter 3 ONP 1-15
R 3/13 Chapter 3 and Use of Bloomberg data ONP 1-15
T 3/18 Spring Recess - Classes Not in Session
R 3/20 Spring Recess - Classes Not in Session
ONP 1-15
ONP 1-15
T 3/25 Chapter 3
R 3/27 Chapter 4
ONP 1-15
ONP 1-15
T 4/1 Chapter 4
R 4/3 Chapter 4
T 4/8 Chapter 5
R 4/10 Chapter 5
T 4/15 Classes Not in Session
R 4/17 Chapter 5
T 4/22 Review of Selected Readings
R 4/24 Review of Selected Readings
ONP 1-15
ONP 1-15
ONP 1-15
ONP 1-15
ONP 1-15
ONP 1-15
Discussion
Discussion
14 T 4/29 Review of Selected Readings
R 5/1 Review of Selected Chapters in
Preparation for Final Exam
T 5/6 Students Presentation
Discussion
N/A
15 Be prepared for your PP
Slides for presentation
R 5/8 Snow/Study/Ready Day for Undergraduate classes only.
Graduate classes will meet.
16 T 5/13 Finals Week for ALL classes
All items on the syllabus are tentative and subject to change at the instructor’s discretion.
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Course Outline
Introduction to Derivatives Markets
An overview of the purpose and structure of options and futures contracts and global markets. Terminology employed in derivatives markets will be introduced. The discussion will consider the impact of technology on these markets and the regulatory and ethical standards.
Text: Chapter 1
Mechanics of the Options Market
An introduction to the structure of and trading practices in options markets. Although the discussion will focus on the US markets, international markets will also be considered. The discussion will consider ethical standards for participants in this market. Types of contracts and terminology used in the options market will also be presented. The use of technology in these markets will be explored.
Text: Chapter 8, Questions: to be assigned
Properties of Stock Option Prices
An examination of option values prior to maturity, and an analysis of why the boundary conditions discussed in the chapter must hold in an options market where no arbitrage opportunities exist.
Text: Chapter 9
Readings: Mittnki and Rieken, A Put-Call Parity and the Informational
Efficiency of the German DAX Index Options Market, @ International Review of
Financial Analysis, 2000, Vol 9(3)
European Option Pricing
Three option pricing models will be introduced: the single period binomial model, the multi-period binomial model and the Black-Scholes Option Pricing Model for European options.
Text: Chapter 10 and 11
Reading: Black, F. And M. Scholes, A The Pricing of Options and Corporate
Liabilities, Journal of Political Economy, May-June 1973
Chance, Don. A Research Trends in Derivatives and Risk Management Since
Black- Scholes, @ Journal of Portfolio Management , May 1999 .
Mechanics of Forward and Futures Markets
Mechanics of futures contracts: trading, contract structure, marking to market, margins
Forward and Futures Prices
Valuing Forward and Futures Contracts. The relationship between forward and futures prices.
Stock Index futures, currency futures and commodity futures are specifically considered.
Text: Chapter 3
Hedging Strategies Using Futures Contracts
Basic principles of hedging, hedging strategies, determination of hedge ratios.
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Text: Hull: Chapter 4
Reading: Reading: Culp, C. L. and M.H. Miller, A Metallgesellschaft and the
Economics of Synthetic Storage, @ Journal of Applied Corporate Finance
(Winter 1995)
Interest Rate Markets
Characteristics of interest rate futures including T-bond futures, Eurodollar futures.
Use of financial futures for hedging.
Text: Hull, Chapter 5
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