FIN4750, Options Markets

Section NFA, 14195, Spring 2024. 

Time: Friday, 2:30-5:25 pm

Office Hours: Friday, 1:00-2:00 pm. Or by appointment. liuren.wu@baruch.cuny.edu.

• Overview

The class provides students with a basic understanding of the derivatives market, with a focus on options. The class will highlight the fundamental differences between valuing and investing in derivatives versus valuing and investing in primary securities and will introduce the concepts of replication, hedging, relative valuation, and arbitrage trading.

• Readings

The required textbook for this class is: John Hull, Options, Futures, and Other Derivatives, 11th edition. The author's homepage provides additional materials about this book: http://www-2.rotman.utoronto.ca/~hull/ofod/index.html.

I have also created a class homepage that contains class schedules, lecture notes, exercises, past exam questions, and other relevant information: https://sites.google.com/view/liurenwu/classes/fin-4750-options-markets

• Class format: Hybrid

The class will be delivered via a combination of pre-recorded videos and live tutorial Q/A sessions. The pre-recorded videos explain the concepts and go over the lecture notes. The tutorial sessions are to answer student questions and go over some sample questions and homework problems.

The lecture notes are posted underlying each topic in the class schedule table below. The video recordings for each chapter are posted under the approximate dates in the table. I expect the students to read the lecture notes and watch the chapter video recordings according to the scheduled dates.

On dates marked as "tutorial", we will hold live tutorial sessions to answer student questions and go over some example exercises. I expect students to have read the lecture notes, watched the videos, and gone over the exercises posted on the class page and the blackboard before the tutorial session of each chapter.

The midterm and final exams will be held online via Blackboard.

• Exams, grades, and class policies

  1. There will be two exams: one midterm and one final. Exams are not cumulative, but the topics are built on each other.

  2.   Your grade will be based on a weighted average of the two exams and class participation, with a 65% weight on the higher score and a 25% weight on the lower score of the two exams. Class participation accounts for 10% of your total grade. The class participation score is based mainly on your homework assignments on the blackboard.

  3. The exams will be given on blackboard remotely with live zoom session. You can ask me clarifying questions via zoom chat in private during the exam.  Make sure you are at a place with a stable internet connection and you have practiced enough on the blackboard assignments so that you don't have accidents managing the blackboard session, such as signing yourself out or submitting the exam early by accident. If you accidentally logged out and submitted your exam early, you can try a second time. You will not be able to access the exam after the second attempt. 

  4. The exams are open-book. You are expected to do the exam by yourself, but feel free to consult textbooks, lecture notes, and online materials. You are strongly recommended to do numerical questions in excel. You can prepare excel templates in advance for certain types of computation-intensive questions. Avoid rounding during intermediate steps so that your final answers match the solution exactly.

  5. You must notify me one week in advance if you are unable to attend an exam. Otherwise, you will receive a zero for that exam. When you cannot make the exam for a valid reason, I will schedule a makeup date during the one week following the exam date. 

• Class schedule

  1. January 26, Introduction on Zoom

  2. February 2, Read lecture notes, Watch video (1a, 1b)

     • Lecture notes: Introduction, Forward & Futures

     • Summary, Exercises, exercise (solution)

     • Book chapters 1, 2, 3, 5

  3. February 9, Zoom tutorial on forwards and futures

  4. February 16, Read lecture notes, Watch video (2a, 2b)

     • Lecture Notes: General properties of options

     • Exercise (solution)

     • Book chapters 10,11

  5. February 23, Zoom tutorial on option general properties

  6. March 1, Read lecture notes, Watch video (3a, 3b)

     • Lecture notes: Options trading strategies

     • Exercise (solution)

     • Book chapters 12

  7. March 8, Zoom tutorial on option strategies and midterm review

     • Summary of topics, some exercises (solution), 

     • Previous midterm exam samples: Fall 2007 midterm (solution), Spring 2008 midterm (solution), Fall 2008 midterm (solution), Spring 2009 midterm (solution), Spring 2015 midterm (Part I solution, Part II solution), Fall 2015 midterm (solution), Fall 2017 midterm A (B, solution), Fall 2018 midterm (solution)

  8. Midterm exam, March 15, Blackboard (2:30-4:30 pm)

  9. March  22, Read lecture notes, Watch video (5a, 5b)

     • Lecture notes: Binomial trees

     • Exercise (solution), Excel Tree

     • Book chapters 13

  10. April 5, Zoom tutorial on binomial tree

  11. April 12, Read lecture notes, Watch video (6a, 6b)

      • Lecture notes: The Black-Merton-Scholes model

      • BMS calculator

      • Book Chapters 14, 15 (17-18)

  12. April 19, Zoom tutorial for BMS model

  13. May 3, Read lecture notes, Watch video (7)

      • Lecture notes: P&L attribution (option greeks)

      • Exercise, Notes, Effectiveness of delta hedge

      • Book Chapters 19

  14. May 10, Zoom tutorial on hedging/greeks and final review

      • Summary of topics

      • Previous final exam samples: Fall 2007 final (solution), Spring 2008 (solution),  Fall 2008 (solution), Spring 2009 final (solution), Spring 2015 final (solution), Fall 2017 final (solution), Fall 2018 final (solution)

  15. Final exam, May 17, 3:30pm-5:30pm, Blackboard 

• General references on program learning goals, academic honesty, students with disabilities, and learning goals