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Futures and Options (B40.3335.01)
Fall 2011(tentative)
Professor Menachem Brenner
Course Description: This is a course in derivatives markets: structure, valuation and strategies. The main applications include the equities markets, foreign exchange and commodities.
It has two parts: The first part deals with the structure of forward and futures markets, pricing and hedging with such contracts. The second and larger part deals with options markets; strategies, pricing and position analysis. It includes topics like: Short Selling, Value at Risk, Exotic Options, Volatility Derivatives and Trading Volatility. The course will consist of lectures, discussions and problem solving.
Prerequisites: All core courses. This course requires a basic knowledge of futures and options.
Remind yourself of the basic features of futures, calls, puts and payoff diagrams.
Exams and Grading: The final grade will be based on a mid-term exam and a final exam (multiple-choice exams). The mid-term will have a weight of 30% and the final a weight of 70%. Class participation may improve your grade. The grade distribution is: A (25%-30%), B (50%-60%); C (5%-10%); D, F (remainder if any).
Problem Sets: Posted on Blackboard. There will be 8-9 problem sets. Solutions to the problem sets will be provided after you have had a chance to solve them. Additional problems will be presented and discussed in class.
Required Material: You are responsible for the material covered in class, for all announcements made in class, for material posted on Blackboard and sent by e-mail. The problem sets and all handouts are part of the class material.
Required book: Hull John (H) Options, Futures and Other Derivatives, Prentice Hall, 7th ed.
Or 8th ed. (if published in time).
The book is not a substitute for the lecture notes and class discussions. Some topics and details are not covered by the book.
Recommended book: Sundaram Rangarajan and Sanjiv Das, Derivatives, Principles and Practice. McCgraw-Hill/Irwin, 2010.
Market Tracking: You are expected to follow the markets on a daily basis. In particular, you should pay attention to fair value of Gold, SPX and NDX futures, and implied volatility from index options (e.g. VIX, VXN). Market tracking questions may appear on the exam.
Your internet favorites should include; CME, CBOE, iseoptions, optionmetrics.
You are also expected to read the financial press. Pay special attention to the futures and options columns in the WSJ&FT. You may also be interested in reading RISK and the Economist.
E-mail: Check your email regularly for additional material, announcements, assignments.
Office Hours: Tuesday 2:00-4:00, Wednesday 4:00-6:00 & by appointment.
Office; Rm. 9-55. KMEC
Homepage: Other information appears on the Stern Web Site (stern.nyu.edu/~mbrenner)
Classroom Responsibilities:
Class Attendance: Students are expected to attend all classes and be on time.
Cell phones: You should turn off your cell phone before you enter the class.
No Laptops, Blackberries, or any email/internet devices are allowed in class.
Honor Code: You are responsible for maintaining Stern's honor code.
Course Outline
Recommended Textbook: John Hull (H): Options, Futures and Other Derivatives, Prentice Hall, 2008, 7th edition.
I. Overview of Derivatives Markets (H: Ch.1)
II. Futures Markets
1. Forward and Futures: Overview/Comparison
2. The Structure of the Futures Markets (H: Ch. 2)
3. The Cost of Carry Model (H: pp. 99-119)
a) Arbitrage Pricing; Gold Example
FX forwards , Stock Index Futures
4. Hedging with Futures (H: pp. 47-62)
III. Options Markets
1. Options Strategies and Markets (H: Ch. 8, 10)
Options Valuation
a) Arbitrage Conditions (H: pp.201-208)
b) Put-Call Parity (Extended) (H: pp. 208-216)
c) The Binomial Model (+ The American Put) (H: pp.237-248)
d) The Black-Scholes-Merton Model (H: pp.277-287, 291-294)
e) Options on FX, Indices, Futures (H: pp. 330-335)
f) Volatility; smiles and skews (H: pp. 389-397)
g) Sensitivity Analysis (the Greek letters) (H: pp. 357-376)
Risk Management (H: pp. 451-453)
Exotic Options (H: Ch. 24, optional)
Applications: Structured Products, ESO
PAGE
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