| # | Date | Topic | Reading | Homework |
|---|---|---|---|---|
| 1 | F 9/10 | Introduction to the course | - | - |
| - | - | The motion of stock prices | [WSJ] p. 36-49. | HW1 (due 9/13; do not hand in) |
| 2 | M 9/13 | Return, logarithmic return, absolute return; [computer disaster] | - | - |
| 3 | W 9/15 | Data analysis of the above using SPSS | - | HW2 (Due 9/17) |
| - | - | Interest rates (discrete compounding) | Handout from Hahn. Also [W] 1.2 (p. 3-5) including the "important aside"! | - |
| 4 | F 9/17 | Continuous compounding | - | HW3: Hahn problems on handout: 1, 4 (read what's above), 5 (do 10 and 15 years at 7% compounded monthly, and suppose the the payments are at the beginning of each month but not on the final date), 6 (assume that the payments are at the beginning of each month and there is no payment on the day you turn 21, and that the amount is compounded continuously.) Due 9/22 |
| 5 | M 9/20 | Differential equation approach to continuous compounding | - | - |
| - | - | Return for discrete and continuous compounding | - | - |
| 6 | W 9/22 | - | - | - |
| 7 | F 9/24 | Present and future value | Wilmott handout | HW 4: Do log return for discrete and continuous compounding. Also Kahn: 4.5, 4.6, 4.7 (due 9/27) |
| 8 | F 9/26 | Probability and statistics | Handout | - |
| 9 | M 9/27 | (con't) | - | Homework 5 (due 10/6) |
| 10 | W 9/29 | (con't) | - | Homework 6 (due 10/4) |
| 11 | F 10/1 | Brownian motion | Handout | - |
| 12 | M 10/4 | (con't) | - | - |
| 13 | W 10/6 | Quiz 1 | - | - |
| 14 | F 10/8 | Forwards | Hull p. 2 | - |
| - | - | Futures | Hull p. 5, WSJG p. 126-139 | - |
| 15 | W 10/13 | Options | Hull 1.5 (p. 6--10), 7.1--7.8 (p. 151--161); WSJG p. 142--149 | For both your stocks: (1) Find and print out the value of October options today. (2) Print these out after trading Friday (ie after 4pm, but don't wait too long since the data will disappear). (3) Print out the value of November options today. Save these printouts for later use. |
| - | - | Terminology: call/put, premium/strike price/expiration date, long (buying)/short (writing) position, in/at/out of the money, European/American, naked/covered calls | - | - |
| 16 | F 10/15 | - | - | - |
| - | M 10/18, W 10/20 | (no class) | Exam I | - |
| 19 | F 10/22 | Two ways to invest with calls | Hull p. 12 | HW 7: Hull p. 16: 1.8 (Assume that the stock price three months later is $33), 1.9, p. 164: 7.6 (due 10/27) |
| 20 | M 10/25 | - | - | HW8: 1.4, 1.7 (assume premium of put is $2), 7.1 (Due 10/29) |
| 21 | W 10/27 | - | - | - |
| 22 | F 10/29 | Quiz 2 | - | HW 9 (handout) due 11/1 |
| 23 | M 11/1 | One-step binomial tree (example) | Hull 10.1 (p. 200) | HW10: Hull 10.1 (p. 214) due 11/8. Also answer the following: (b) Suppose that the strike price of the call is $43. What should its price be? (c) Suppose that the strike price of the call is $36. What should its price be? |
| - | - | - | - | HW11 (handout--sorry I put "Homework 10" on it) due 11/5. Also for both your stocks print out the prices of November options, also for three dates in the future (eg Dec, Jan, Feb options). |
| 24 | W 11/3 | Bachelier diagrams | Quiz 3 | - |
| 25 | F 11/5 | One-step binomial tree (in general) | Hull p. 202 | - |
| 26 | M 11/8 | Risk-neutral valuation | - | HW 12: Repeat 10.1 (abc) replacing the call with a put. Also do 10.14 (due 11/15) |
| 27 | W 11/10 | Covarience, correlation, scatter plots | Handout | - |
| 28 | F 11/12 | balloon rule for correlations | - | - |
| 29 | M 11/15 | Two-step binomial model | Hull 10.3 (p. 205) | - |
| 30 | W 11/17 | Binary trees to the Black-Scholes formula | Handout | - |
| - | - | Derivagem software | Handout | - |
| 31 | F 11/19 | Estimating parameters in GBM from data | - | - |
| - | - | Testing stock data for GBM | Handout on Q-Q plots and SW statistic | HW 13: Handout "Testing stock returns for geometric Brownian motion" (Due 11/29) |
| 32 | M 11/22 | Comparing market prices of options with BS values | - | HW 14: p. 198: 9.3, 9.19; p. 214: 10.5, 10.19; p. 258: 12.4, 12.13 (check your answers with DerivaGem) (due 11/30) |
| - | - | Implied volatility | Hull Sec. 12.11 (p. 250) | - |
| 33 | M 11/29 | Check special cases of Black-Scholes | Hull p. 247| - |
|
| 34 | W 12/1 | Video "Trillion dollar bet" | - | - |
| 35 | F 12/3 | Risk-neutral valuation | Hull 10.2 | - |
| 36 | M 12/6 | Monte-Carlo simulation | Hull p. 224, p. 410 | - |
| - | - | Volatility smiles | Hull 15.3 (p. 334) | - |
| 37 | W 12/8 | Project presentations I | - | - |
| 38 | F 12/10 | Project presentations II | - | - |
| 39 | M 12/13 | Project presentations III | - | HW 15 (optional) |
| - | Mon 12/20 | All homework and rewrites due by 5pm | - | - |
[WSJ] = The Wall Street Journal Guide to Understanding Money & Investing
[W] = P. Wilmott, Paul Wilmott on Quantative Finace