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JOHN CABOT UNIVERSITY

COURSE CODE: "FIN 340 "
COURSE NAME: "Introduction to Derivatives "
SEMESTER & YEAR: Spring 2021
SYLLABUS

INSTRUCTOR: Crina Pungulescu
EMAIL: [email protected]
HOURS: TTH 1:30 PM 2:45 PM
TOTAL NO. OF CONTACT HOURS: 45
CREDITS: 3
PREREQUISITES: Prerequisite: FIN 301
OFFICE HOURS: by appointment

COURSE DESCRIPTION:
Focusing on both theory and application, the course will cover forward, futures, swaps and options markets. Students will learn how derivatives markets operate, and how derivatives are priced and used, in order to understand the importance of derivative instruments in business and the economy. Special attention will be paid to the mechanics of derivative instruments and the markets in which they trade, using the Law of One Price and arbitrage forces to develop derivatives pricing models, applying derivatives pricing models using real world data, communicating derivative hedging strategies and applying speculative strategies using derivatives.
SUMMARY OF COURSE CONTENT:

This syllabus is a draft. The final syllabus will be distributed the first day of class.

The topics covered are:

1. Financial Markets (A Review of Bond and Stock Pricing)

- measuring performance (returns and volatility)

- diversification, beta, the Capital Asset Pricing Model

- bond pricing

- duration, convexity

- mortgage markets

        

2. Futures

- future versus forward contracts

- hedging strategies using futures, cross-hedging

- stock index futures

- interest rate futures

- duration-based hedging strategies using futures

- hedging with duration and convexity

- futures prices of stock indices, currencies, commodities

3. Options

- payoffs from positions in European options

- hedging with options

- speculation using options

- factors affecting option prices

- the Put-Call Parity

- trading strategies including options (covered call/put, straddle, strangle, strips and straps, bull spread, bear spread, box spreads, butterfly spreads

4. Valuing Stock Options

- binomial Trees

- risk-neutral valuation

- delta hedging

- option pricing with binomial trees

- the Black - Scholes - Merton Model

- modelling stock prices (Wiener processes, Itô’s Lemma)


LEARNING OUTCOMES:

Upon successful completion of the course a student will be able to:

·      Understand the importance of derivative instruments in business and the economy.

·      Understand the mechanics of derivative instruments and the markets in which they trade.

·      Be able to apply derivatives pricing models using real world data.

·      Be able to effectively illustrate and apply derivative hedging strategies.

·      Understand and apply speculative strategies using derivatives.

TEXTBOOK:
Book TitleAuthorPublisherISBN numberLibrary Call NumberComments
Fundamentals of Futures and Options MarketsJ. HullPearson, Prentice Hall9780132993340 Other editions of the textbook are also acceptable.
REQUIRED RESERVED READING:
NONE

RECOMMENDED RESERVED READING:
NONE
GRADING POLICY
-ASSESSMENT METHODS:
AssignmentGuidelinesWeight
Homework 20
Exam 1 20
Exam 2 20
Final ExamSince the final exam is comprehensive, if the final exam grade is higher than the partial exam grade(s), the final exam grade will replace the partial exam grade(s) in the calculation of the final grade for the course. 40

-ASSESSMENT CRITERIA:
AWork of this quality directly addresses the question or problem raised and provides a coherent argument displaying an extensive knowledge of relevant information or content. The student demonstrates complete, accurate, and critical knowledge of all the topics, and is able to solve problems autonomously.
BThis is highly competent level of performance and directly addresses the question or problem raised. There is a demonstration of some ability to critically evaluate theory and concepts and relate them to practice. The work does not suffer from any major errors or omissions and provides evidence that the student uses clear logic in his/her arguments.
CThis is an acceptable level of performance and provides answers that are clear but limited, reflecting the information offered in the lectures. Mathematical statements are properly written most of the time.
DThis level of performances demonstrates that the student lacks a coherent grasp of the material. Important information is omitted and irrelevant points included. Many mistakes are made in solving the problem raised. In effect, the student has barely done enough to persuade the instructor that s/he should not fail.
FThis work fails to show any knowledge or understanding of the subject-matter. Most of the material in the answer is irrelevant.

-ATTENDANCE REQUIREMENTS:

Students are required to attend classes following the University’s policies.

ACADEMIC HONESTY
As stated in the university catalog, any student who commits an act of academic dishonesty will receive a failing grade on the work in which the dishonesty occurred. In addition, acts of academic dishonesty, irrespective of the weight of the assignment, may result in the student receiving a failing grade in the course. Instances of academic dishonesty will be reported to the Dean of Academic Affairs. A student who is reported twice for academic dishonesty is subject to summary dismissal from the University. In such a case, the Academic Council will then make a recommendation to the President, who will make the final decision.
STUDENTS WITH LEARNING OR OTHER DISABILITIES
John Cabot University does not discriminate on the basis of disability or handicap. Students with approved accommodations must inform their professors at the beginning of the term. Please see the website for the complete policy.

SCHEDULE

SessionSession FocusReading AssignmentOther AssignmentMeeting Place/Exam Dates
Week 1 to 4Financial Markets (A Review of Stock and Bond Pricing)   
Week 4 to 7Futures and Forward Contracts   
Week 7 to 10Options  Exam 1 (date to be announced on the first day of classes)
Week 10 to 13Option Pricing (The Black - Scholes - Merton Model) and Hedging Strategies  Exam 2 (date to be announced on the first day of classes)
Week 14Review for Final Exam   Final Exam (Comprehensive): see University schedule for date and time