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FIN 471: DERIVATIVE SECURITIES

INSTRUCTOR: Riaz Hussain OFFICE: 431 Brennan Hall

OFFICE HOURS: Monday and Wednesday, 1:00 - 2:55 PM. Other office hours by appointment.

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

OBJECTIVES: After taking this course, the students will be able to

1. Use Maple as a tool for financial analysis.

2. Understand the nature of derivative securities.

3. Understand the basic principles of options valuation.

4. Use the Black-Scholes option pricing model.

5. Understand the nature of Treasury securities and their relationship to options.

6. Measure the volatility of a stock.

7. See some of the extensions of the Black-Scholes model.

8. Understand the risk-return tradeoff for simple and complex option strategies.

9. Understand and apply the binomial option pricing model.

10.  Apply options in portfolio protection.

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, August 201. The sale of this book supports a scholarship at the University.

The students taking this course should read the Wall Street Journal or the New York Times on a daily basis. They should be able to find the financial data, such as the stock prices, beta and volatility of stocks, interest rates, and option prices on the Internet.

PREREQUISITES: FIN 351, Introduction to Finance. Knowledge of calculus is helpful.

EXAMINATIONS:

First: September   28, 2011 Second: November 2, 2011
Third: November 30, 2011 Final: TBA

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.

TENTATIVE SCHEDULE:

 

Week

Subject

Section

1

Derivative Securities; Option Valuation

1, 2

2

Put-Call Parity Theorem; Maple

3, 4

3

Black-Scholes Option Pricing Model

5

4

Treasury Securities
Volatility of a stock

6, 7
5 Extension of Black-Scholes Model 8
6 Review and Discussion  
7 Option Strategies 9
8 Option Strategies 9
9 Option Strategies 10
10 Option Strategies 10
11 Binomial Option Pricing Model 11
12 Portfolio Insurance 12
13 Review and Discussion  

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