Course introduction: Investments
Prof. Anthony Lee Zhang
University of Chicago Booth School of Business
BUSN 20400
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About Me
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Joined Booth in 2019
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Undergrad UChicago 2010-2013
Facebook 2013-2014
PhD from Stanford 2014-2019
Research interests:
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Market microstructure and market design
Specific research topics:
1. Derivatives
2. Housing markets
3. Negotiations
→ https://anthonyleezhang.github.io/
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Contact Information
Professor Anthony Lee Zhang
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Email: anthony.zhang@chicagobooth.edu
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Office hours: Zoom, Mondays 11:00am – Noon Chicago time
(unless rescheduled)
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Admin assistant: Megan Jennings-Quist,
megan.jennings-quist@chicagobooth.edu
Teaching Assistant Xindi He
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Email: Xindi.He@chicagobooth.edu
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Office hours: Tuesdays 3:30pm – 5:00pm
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Review sessions: Will be scheduled before midterm and final
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Self-introductions!
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Resources and Responsibilities
1. Slides on Canvas (after lectures)
2. Readings: Bodie, Kane, and Marcus (BKM): Investments,
9th, 10th, or 11th Edition
3. Attendance
4. Problem Sets: 1-3 posted on Canvas
5. DFA Case
6. Midterm and Final Exam
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Course Grading Guidelines
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The grade components are:
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Midterm exam (optional, required for provisional grade)
Final exam
Six graded problem sets (optional)
Case write-up
Participation
Your grade is the maximum over these two possibilities (so
midterm and problem sets can only help you)
Class Participation
DFA Case Write-Up
Problem Sets
Midterm
Final Exam
5%
10%
20%
25%
40%
5%
10%
0%
0%
85%
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Problem Sets
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Assignments are due 11:59pm Chicago time on Wednesdays
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Answers will be posted on the web soon after
Computer use required for many problems
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Submit all assignments via Canvas
You may want to say something about how you solved the
problem to qualify for partial credit
Discussion of homework assignments with fellow students
encouraged
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However, please turn in your own writeup
Write the names of everyone you worked with on the front
page of your problem set
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Case Write-Up
Harvard Case on “Dimensional Fund Advisors”
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DFA started by two former Booth students—including David
Booth—and currently advised by several Booth finance
professors
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This case ties in with some of the key course material and will
be discussed in class
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Form groups of four or fewer students – crossing sections is
fine
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The write-up should not exceed five typed pages (plus figures,
tables, or an appendix)
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Further details provided with the case
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Since it’s hard to meet classmates these days, I made a
Google doc to help form groups (but you don’t need to use it)
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Due 11:59pm, May 20th
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Honor Code
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Each student shall sign the following pledge on each exam:
“I pledge my honor that I have not violated the Booth
Honor Code during this examination”
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Honor code is here:
https://www.chicagobooth.edu/documents/studenthandbook/2019-2020/12/index.html
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Students are required to adhere to the standards of conduct in
the Honor Code and Standards of Scholarship
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Course Outline
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Course Outline I
Week 1: Risk and Return
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Overview of financial markets and securities
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Risk and return: what do we need asset pricing models for?
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Time value of money
Week 2: Introduction to Asset Allocation
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What do we need to take into account when building a
portfolio?
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Portfolio mathematics: expected return and variance
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Course Outline II
Week 3: MV Analysis and the CAPM
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Mean-variance analysis
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What is the “best” portfolio for us and how do we compute it?
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The Capital Asset Pricing Model: linking expected returns
and risk
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“How much should you expect to get by investing in Dell?”
Week 4: Practical Asset Allocation and APT
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Can we make use of portfolio theory in practice?
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Arbitrage Pricing Theory: a CAPM-like model that connects
expected returns to multiple sources of risk
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Course Outline III
Week 5: Market Efficiency and Anomalies, The Money
Management Industry
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Are markets efficient or inefficient, or, to what degree are
markets efficient? How should we think about efficiency?
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How could markets be efficient when people exhibit so many
behavioral biases?
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Anomalies: Seeming violations of market efficiency
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Pension funds, mutual funds, and hedge funds
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Alpha, α: How do we measure managerial skill?
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What attributes are common among successful managers?
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Chasing best-performing managers
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Course Outline IV
Week 6: Fixed Income (Bonds)
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Different fixed income instruments: treasuries, corporate
bonds, mortgage-backed securities
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Valuation of known (“fixed”) income streams
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Important concepts: yield-to-maturity, yield curve, duration,
etc.
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Hedging: reducing or eliminating risk
Week 7: Forwards and Futures
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Forwards and Futures: Instead of buying or selling something
today, enter a binding contract to buy or sell in the future
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How do we value these contracts?
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Introduction to arbitrage-free pricing
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Course Outline V
Week 8: Options
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Call and put options: a right, not an obligation, to buy or sell
something in the future at a predetermined price
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Basic concepts
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Binomial option pricing: What is the fair value of an option?
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The Black-Scholes option pricing formula
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Even if we do not believe the model assumptions, do we learn
something from it?
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Derivatives in practice: Who uses them and for what?
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