Chapel Garden

FINANCE 585: DERIVATIVE SECURITIES

INSTRUCTOR: Riaz Hussain OFFICE: 431 Brennan Hall

OFFICE HOURS: By appointment only.

TELEPHONE: Office 941-7497, secretary 941-4048, FAX: 941-4825, home 347-8077, e-mail: Send an email

OBJECTIVES: After successfully completing this course, the students will

1. Be able to use Maple to solve derivatives problems

2. Understand the nature of derivative securities

3. Know the principles of option valuation

4. Understand and be able to apply the Put-Call Parity Theorem

5. Understand the mathematical and economic basis of the Black-Scholes Option Pricing Model

6. Be able to use Treasury Securities to find the risk-free interest rate

7. Calculate the historical and implied volatility of a stock

8. Know the extensions of the Black-Scholes model

9. Develop the mathematical basis of simple option strategies

10. Analyze complex option strategies: covered-call writing, straddles, time and money spreads

11. Understand the Binomial Option Pricing Model

12. Be able to use options in various portfolio insurance techniques

CATALOGUE DESCRIPTION: The course develops the theory of option pricing based on the Black-Scholes model. It then applies these ideas to the use of options in investment strategies and in portfolio management. The students get hands-on experience with real-time data to assess the feasibility of various investment opportunities in options markets.

TEXT: Derivative Securities, by Riaz Hussain, University of Scranton, Scranton, PA, July 2012.

The students taking this course should read the Wall Street Journal on a daily basis. They should be able to look up interest rates, stock and option prices on the Internet.

PREREQUISITES: Fin. 508, Financial Management. Knowledge of calculus is helpful.

EXAMINATIONS: First Test: July 12, 2012

Second Test: July 23, 2012

Third Test: July 31, 2012

Final, August 2, 2012

All tests will be closed book, but the students are allowed to bring a formula sheet.

GRADING POLICY: The students grades will depend upon their mastery of the subject matter as evidenced by their performance in tests and classroom participation.

SCHEDULE: Tentatively, the course will cover the following topics:

Class Date

2012

Subject Chapter
1 July 5

Maple

Derivative Securities

1

2

2 July 9

Option Valuation

Put-Call Parity Theorem

3

4

3 July 10 Black-Scholes Option Pricing Model 5
4 July 12

First test

Treasury Securities

Volatility of a Stock

6

7

5 July 16

Extensions of the Black-Scholes Model

8
6 July 17 Review and Discussion  
7 July 19 Option Strategies: Simple 9
8 July 23

Second test

Option Strategies: Complex

10
9 July 24 Option strategies: Complex 10
10 July 26 Binomial Option Pricing Model 11
11 July 30

Portfolio Insurance

12
12 July 31

Third test

Review and Discussion
 
13 August 2 Final Examination