SYLLABUS
ISE 563 - FINANCIAL ENGINEERING
Spring 2014
Instructor:
Phone:
E-mail:
Class times and Places:
Office Hours:
Teaching Assistant:
Phone during office hours:
E-mail:
Office Hours:
John Schroeder
(949) 922-3264 cell
john.schroeder@usc.edu
Early section Mondays & Wednesdays
3:30 – 4:50 in OHE 132
Later section –
Mondays & Wednesdays
5:00-6:20 PM in GFS 118
Wednesdays
1:00pm to 3:00pm in GER 2016C
and by appointment DEN students can arrange telecons as needed.
Phone during office hours: (213) 740 0867 or cell: (949) 922 3264
TBD
TBD
tbd
tbd
Textbook: Options, Futures, and other Derivatives 8th Edition by John C. Hull ISBN 9780132777421 or
ISBN 9780132164948 (international edition)
Class Notes: Lecture slides will be posted on the Distance Education Network (DEN). They are posted by
12:00 noon the day of class. If revisions occur after posting, they are re-posted the day after class.
Additional Reading Assignments: Supplemental reading will occasionally be required. Such material will be
posted on DEN prior to the assignment.
Website:
DEN Website: http://den.usc.edu
Blackboard: http://learn.usc.edu
Administrative:
DEN Technical Support
DEN Homework
DEN Exams and Proctoring
DEN Administrative Questions
Mary Ordaz, Student Services Advisor
Norma Orduna, Student Services Assistant
213-821-1321
213-740-9356
213-821-3136
213-740-4488
213-740-4886
213-740-8935
Course Objectives:
To become familiar with financial markets, derivative contracts, the mathematical basis for the evaluation of
derivatives, and the use of derivatives in risk mitigation and investing. This class will prepare the student for
future classes in the Financial Engineering Masters Program and/or help prepare him for a vocation as an
investment analyst. Numerous examples are presented and analyzed of using derivatives in successful investing.
Topics by Class and Reading Assignments:
CLASS DAY
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
DATE
Mon
Wed
Mon
Wed
Mon
Wed
Mon
Wed
Mon
Wed
Mon
Wed
Mon
Wed
Mon
Wed
Mon
Wed
13-Jan
15-Jan
20-Jan
22-Jan
27-Jan
29-Jan
3-Feb
5-Feb
10-Feb
12-Feb
17-Feb
19-Feb
24-Feb
26-Feb
3-Mar
5-Mar
10-Mar
12-Mar
Mon
Wed
Mon
Wed
Mon
Wed
Mon
Wed
Mon
Wed
Wed
Wed
24-Mar
26-Mar
31-Mar
2-Apr
7-Apr
9-Apr
14-Apr
16-Apr
21-Apr
23-Apr
25-Apr
30-Apr
Final Exam
Wed
Fri
TOPICS
Overview of ISE 563
Markets and Derivatives
Martin Luther King Birthday Holiday
Interest Rates and Present Value Analysis
Interest Rates and Present Value Analysis
Stocks and Properties of Stocks
Stock Options Part 1 of 2
Stock Options Part 2 of 2
Futures and Forwards
Mechanics of Futures
Presidents Day Holiday
Options on Futures
Options-Part 4 Trading Strategies
Historical Volatility and Midterm Preview
MIDTERM 1
Review of Midterm & Class Project Intro
Volatility: Implied
Arbitrage
Spring Recess March 17-22
Portfolio Insurance
Normal Random Variables
Binomial Trees
Weiner Processess
Options Pricing Models
Options Metrics: More on Delta
Options Metrics: Delta, Gamma, Theta, Rho
Technical Analysis
Credit Derivatives & Preview of Midterm 2
Lessons Learned
MIDTERM 2
Review of Midterm
Class Projects Papers Due Mon 5-May 9am
7-May Presentations - 5PM Section: 4:30-6:30 PM
9-May Presentations - 3:30 Section: 2:00-4:00 PM
READING BEFORE CLASS
none
Hull, Chapter 1
Hull Sections 4.1, 4.2
Hull Remainder of Ch 4
To Be Provided
Hull Chapter 9
Hull Chapter 10
To Be Provided
Hull Ch 2
HOMEWORK
ASSIGNED:
H/W 1
H/W 2
H/W 3
CME and NFA Options Guides
Hull Ch 11
H/W 4
Hull section 14.4
none
none
Ch 5 sections 1,4, & 9
none
To Be Provided
Hull Chapter 12
Hull Chapter 13
Hull Chapter 14
Hull Chapter 18
Hull Chapter 18
none
Hull Chapter 24
none
Charts due 9am day of
presentation
location: Usual Classroom
location: Usual Classroom
Class Projects will be presented in summary form during the time allocated for a final exam.
H/W 5
H/W 6
H/W 7
HOMEWORK:
Each homework assignment will be described in the last slides of the preceding lecture. There will be
6 homework assignments. Typically they are assigned on Wednesdays for completion and submission by the
beginning of class on the following Monday.
Submission Of Homework by both DEN and On Campus Students:
 DO NOT email submissions to DEN (denhw@usc.edu), the professor, or the TA, they will
not be accepted.
 Assignments will be posted and submitted through the course website.
 Students are strongly encouraged to verify each assignment was successfully submitted
to the DEN system.
 To confirm your assignment was received, go to “Tools” > “My Grades”. All your submissions will be
recorded here, if you do not see a link to a “score” or a “!” symbol, your submission was not successful.
If you have any technical issues with the submission process, email the TA immediately.
 Assignments should follow the file naming convention (last_name, first_name HWX.doc
or .ppt or .xls). “X” should be replaced with the corresponding assignment number.
 All submissions should be in the Microsoft Word (.doc), PowerPoint (.ppt), or Excel (.xls)
format; do not submit assignments in the PDF (.pdf) format.
 The grade for any homework assignment will be reduced by one letter grade per week unless prior
arrangement is made with the instructor. USC Grading Policies are followed.
MIDTERM EXAMINATIONS:
The first midterm examinations will cover all of the course material covered prior to class 12. The second
midterm examination will cover the material from classes 13 thru 25. It will also repeat one question from
midterm 1.
Midterm 1 ise closed book. Calculators are allowed and one 4 x 6 card with handwritten notes. No electronic
devices are allowed. Midterm 2 is open source: text, laptops, notes, etc. No electronic communications.
If you are a DEN student, it is your responsibility to coordinate your exam time/location with the DEN office.
FINAL EXAMINATION:
The Final Examination will consist of the class project and the presentations
CLASS PROJECTS:
Class projects are 8 to 10 page papers on a topic associated with financial derivatives. Students are grouped into
teams of 5 people each. The teams may pick from suggested topics or suggest one of their own choosing. Each
team will present an overview of their paper to the class per the schedule for final exams.
GRADING METHOD:
The class grade is based on a combination of the homework, midterm, class project and final examination.
The weight for each category is as follows:
Homework
30%
Mid Term 1
25%
Mid Term 1I
25%
Class Project (Final Exam)
20%
100%
ACADEMIC INTEGRITY STATEMENT -"“The Viterbi School of Engineering adheres to the University's
policies and procedures governing academic integrity as described in SCampus. Students are expected to be
aware of and to observe the academic integrity standards described in SCampus, and to expect those standards
to be enforced in this course”.
STUDENTS WITH DISABILITIES: "Any Student requesting academic accommodations based on a
disability is required to register with Disability Services and Programs (DSP) each semester. A letter of
verification for approved accommodations can be obtained from DSP. Please be sure the letter is delivered to
me (or to TA) as early in the semester as possible. DSP is located in STU 301 and is open 8:30 a.m. - 5:00 p.m.,
Monday through Friday. The phone number for DSP is (213)740-0776”.