Finance Derivative Markets (Section: C1)

Transcription

1 Finance Derivative Markets (Section: C1) Summer 2010 Peter Lou, CFA Adjunct Professor Ageno School of Business GOLDEN GATE UNIVERSITY Contact Information loupeter1@yahoo.com (Subject line: GGU Finance) Important Dates: May 02, 2010 through August 21, 2010 l. Course Description Introduces theory and practice in the forward, futures, swap and options markets. Topics include commodity derivatives, currency derivatives, stock options, stock index futures and options, interest rate derivatives, arbitrage strategies, Black-Scholes and Binomial optionpricing models and computer applications. Prerequisites: MATH 100, FI 300, or consent of instructor. 2. Course Objectives By the end of this term, you will be able to do the following: Describe investment alternatives using financial derivative; Apply investment alternatives using financial derivatives to cases. Explain how corporations apply derivative theories and techniques in solving realworld financial problems. Advise firms or private clients on how to manage corporate earnings through the uses of financial derivatives (e.g. foreign currency hedging, interest rate risk management, credit derivative swaps, etc.). Analyze and solve certain derivatives-related financial problems seen in a standard test such as CFP and CFA exam. 3. Required Materials Kolb, Robert W., Futures, Options and Swaps, Malden MA, Blackwell Publishing, 5th Edition. Harvard Business School Case Studies: Case 1: Liability Management at general Motor. Product # Case 2: Leland, O Brien & Rubinstein Associates: Portfolio Insurance. Product # Case 3: American Barrick Resources Corp.: Managing Gold Price Risk. Product #

2 Case 4: Pine Street Capital, Product #: Case 5: Citibank Hong Kong: Credit Derivatives, Product #: Case 6: Farallon Capital Management: Risk Arbitrage (A), Product # Case 7: Derivative Markets: Structure & Risks. Product # You need to have a financial calculator by our second meeting. You can use any financial calculator as long as it has all the functions we use in class, including PV, FV, cash flow calculations (models: HP10B, HP 12C, HP 17B, TI BA II, ). Book Store To purchase course books and materials from efollett, GGU's official online bookstore, go to University Library Find the GGU Library Home Page at There are several databases available through the Golden Gate University Library for students to conduct research on various topics. Remote (off campus) access to the databases requires your last name and student ID# (located on the front of your ID card). 4. Teaching Style Lectures, discussion, problem solving, case studies, homework assignments. 5. Class Expectations Class participation is important and can favorably affect your grade. Minimum acceptable participation is regular attendance and completion of the specific assignments. Selected end-of-chapter problems will be assigned each week. 6. Course Procedure You will have assigned reading to be done prior to each class. Between classes you will practice on the selected end-of-chapter questions. You will also be expected to complete one mid-term exam (take home, open-book and open notes) and the final comprehensive exam (closed-book). 7. Course Evaluations The Exams will be combinations of multiple choice and essay questions and problems. 8. Grading Policy, Exams and Case Studies Tentative Grading System: Score Grade % A 85-89% A % B % B 70-74% B % C % C

3 55-59% C % D Below 45% F Class Participation (Discussion Forum) 15% Three Case Studies 25% Midterm Exam 25% Final Exam (comprehensive) 35% You are expected to complete one mid-term exam (take home, open-book and open notes) and the final comprehensive exam. The final exam will be a closed-book, supervised exam with one-page note (both sides) allowed. Also you are required to prepare three case studies (choose any two cases from the list in Section 3, Required Materials ). Farallon Capital Management: Risk Arbitrage is required for all. The cases are due the same week as the final exam (week 16). Case Study Guideline: Citibank Capital Arbitrage in Emerging Markets Sample Guidance (for illustration purpose). Provide a business report (6-8 pages for each case, including cover page, Table of Contents, Reference; graduate school-level quality) that includes: Overview: the issues / business case; the parties involved. Proposed solutions: Strength analysis. Proposed solutions: Potential risks involved in this credit derivative deal. Critique / evaluate on the proposed talk points to clients. Provide some analysis of the bond features in Exhibit 1, e.g. coupon frequency, discount vs. premium bond, etc. Concluding remarks. Charts / tables / statistical calculations are strongly encouraged when applicable. References. 9. Academic Integrity Policy GGU's Policy on Student Academic Integrity is in effect at all GGU teaching locations, including regional classroom sites, corporate sites, and distance courses delivered in any medium. This policy applies to all business, taxation, and technology students at Golden Gate University. Academic integrity means doing academic work in a manner that strives to achieve the learning objectives your courses have set out for you. It means that you follow the rules and procedures prescribed by your instructors so that you acquire the skills and knowledge your courses are designed to give you. It means that you engage in ethical practices in taking tests and doing assignments and that you respect intellectual property rights by fully disclosing sources of information that appear in your papers and presentations. GGU provides many resources and services that assist you in learning the required research and documentation skills. Please read GGU s Policy on Student Academic Integrity: Policy on Student Academic Integrity 10. Disability Accommodations Golden Gate University seeks to ensure that all programs and services are fully accessible to students with disabilities who identify and express their needs.

4 Information regarding The Americans with Disabilities Acts and GGU s policies and services can be found at: Instructor Biography Senior manager of Portfolio Analysis & Modeling at Wells Fargo Wealth Management, Wells Fargo Bank. Previously served as a senior finance manager at Union Bank of California and as a management consultant at Ernst & Young. M.B.A. from the University of Illinois at Urbana-Champaign. Advanced studies (master and doctoral-levels) in Policy & Planning at University of Iowa. Chartered Financial Analyst (CFA) since Course Outline: Weeks Tentative Topics Reading 1 Class Orientation; Introduction to Derivatives Chapter 1 2 Futures Markets Chapter 2 3 Pricing and Market Mechanics (Part I) Chapter 3 Futures margins & financial safeguards Cost of carry Basis relationships & convergence Arbitrage Impact of market imperfections on futures prices and arbitrage 4 Pricing and Market Mechanics (Part II) Chapter 4 Yield curve discussions Par; Spot / Zero Forward 5 Interest Rate Futures Chapters 5 6 Intro to interest rate futures Eurodollar futures Packs & bundles; Strips implied forward rate pricing Implied repo rates Gross & net basis Delivery options; Hedging 6 Stock Index and Single stock futures Chapter 7 markets: Part I Contract Markets Spreading Beta-based hedging and Risk Extensions 7 Stock Index and Single stock futures Chapter 8 markets: Part II (Refinements) 8 Foreign exchange (FX) Chapter 9 9 Mid-term Exam Chapters The Option Market Chapter Option Payoffs & Option Strategy Chapters Options on Stock Index, Currencies and Chapter 16

5 Futures; Options Approach to Corporate Securities / Stock Prices 13 Exotic & Embedded Options Chapter The Swap Markets & Applications Chapters Self-study Session: Advanced Topics in Financial Derivatives and Their Applications Journal articles / Class handouts 16 Final exam (comprehensive) All chapters