FIN9797, Options Markets
Section UWA, Fall 2024.
Time: Wednesdays, 6:05-9:00m
Office Hours: Wednesdays, 5:00-6:00 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-9797-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
There will be two exams: one midterm and one final. Exams are not cumulative, but the topics are built on each other.
Your grade will be based on a weighted average of the two exams, 3 homework assignments, and class participation. I will put a 65% weight on the higher score and a 25% weight on the lower score of the two exams. The 3 homework assignments on Blackboard account for 5% of the total grade. Missing one assignment loses 1/3rd of the 5%. Class participation accounts for 5% of the total grade. You lose 1/6th of the 5% for each missed tutorial session.
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.
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.
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
August 28, Introduction on Zoom
September 4, Read lecture notes, Watch video (1a, 1b)
Lecture notes: Introduction, Forward & Futures
Book chapters 1, 2, 3, 5
September 11, Zoom tutorial on forwards and futures
September 18, Read lecture notes, Watch video (2a, 2b)
Lecture Notes: General properties of options
Book chapters 10,11
September 25, Zoom tutorial on option general properties
October 9, Read lecture notes, Watch video (3a, 3b)
Lecture notes: Options trading strategies
Book chapters 12
October 16, Zoom tutorial on option strategies and midterm review
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)
Midterm exam, October 23, Blackboard (2:30-4:30 pm)
October 30, Read lecture notes, Watch video (5a, 5b)
Lecture notes: Binomial trees
Book chapters 13
November 6, Zoom tutorial on binomial tree
November 13, Read lecture notes, Watch video (6a, 6b)
Lecture notes: The Black-Merton-Scholes model
Book Chapters 14, 15 (17-18)
November 20, Zoom tutorial for BMS model
December 4, Read lecture notes, Watch video (7)
Lecture notes: P&L attribution (option greeks)
Book Chapters 19
December 11, Zoom tutorial on hedging/greeks and final review
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)
Final exam, TBA, Blackboard