| # | Date | Topics | References | Homework |
|---|---|---|---|---|
| 1 | F 9/5 | Introduction | - | Browse in the chapters in S&P Guide on money, stocks and options |
| 2 | M 9/8 | Interest | Handout | - |
| 3/td> | W 9/10 | Present and future value | HW1, also two problems at the end of above handout. (due 9/12) | - |
| 4 | F 9/12 | A simple example of arbitrage; also downloading data | - | HW 2 |
| 5 | M 9/15 | A quick trip through probability and statistics | Handout | HW 3 (due 9/24) |
| 6 | W 9/17 | Futures; pricing forwards, case when F > S e^{rT} | Browse in the last section of [S&P] and [H] 1.3, 1.4, chapters 2 and 3. Pricing forwards: 5.4 | For practice, work out case when F < Se^{rt}. Don't look in the book! We will take up this topic again on Monday. |
| 7 | F 9/19 | A quick trip through probability and statistics (con't) | - | - |
| 8 | M 9/22 | Pricing forwards, case when F < S e^{rT} | - | - |
| - | - | Selling short | [H] 5.2; [S&P] p. 50 | - |
| - | - | Introduction to options: calls | [H] 1.5; [S&P] p. 142 | - |
| 9 | W 9/24 | [Mountain day] | - | - |
| 10 | F 9/26 | Introduction to options (con't): puts, hedgers and speculators | [H] 1.6--1.10. | - |
| 11 | M 9/29 | Introduction to options (con't): short calls and puts; Bachlier diagrams | [H] 8.1, 8.2 | - |
| 12 | W 10/1 | Bull and bear spreads | [H] 10.2 | - |
| - | - | - | Margins (reading assignment [H] p. 27-30 and p. 194) | - |
| 13 | F 10/3 | Analyse stock data using SPSS | - | HW 4 (due 10/8) |
| 14 | M 10/6 | Proof that the two common ways of writing e^x are the same | -Handout | HW 5: Hull p. 16: 1.4, 1.7, 1.9 (When you evaluate the potential gains and losses in problem 1.9, assume that the price of the stock in 3 months is either $40 or $25.), 1.27; p. 201: 8.4 (due 10/10) |
| 15 | W 10/8 | Random walks | [Handout] | - |
| 16 | F 10/10 | Brownian motion | [Handout] | - |
| - | M 10/13 | [Fall break] | - | - |
| 17 | W 10/15 | [no class] | - | - |
| 18 | F 10/17 | [no class] | - | - |
| 19 | M 10/20 | - | - | HW 6 (due 10/24) |
| 20 | W 10/22 | One-step binomial trees | [H] 11.1 | Problem 11.1 p. 261 (this will be part of your next HW assignment) |
| 21 | F 10/24 | One-step binomial trees, abstract version | [H] 11.1 | - |
| 22 | M 10/27 | Risk-neutral valuation | [H] 11.2 | - |
| 23 | W 10/29 | Two-step binomial trees | [H] 11.3 | Exam I handed out. |
| 24 | F 10/31 | The South Hadley Stock Exchange (SHSE) | None; just 40 cents in change, shares of stock in Mount Holyoke, Smith and Amherst Colleges, and blank forms for long/short calls | - |
| 25 | M 11/3 | Put-call parity | Hull 9.4 | Exam I due. |
| - | - | Spreads: The condor (constructed using calls) | Hull 10.2 (The condor is not in Hull, but other examples of spreads are.) | HW 7: p. 261: 11.1, 11.4 (Do both directly, as on pp. 241--2, and also using risk-neutral probabilities, as in 11.2), 11.5, 11.6 (use risk-neutral probabilities). Also construct a condor using puts. (Do the condor problem on a separate sheet of paper. Put the condor at the top, and line up below it the various puts you need to construct it.) (Due 11/7) |
| 26 | W 11/5 | Brownian motion and generalized Brownian motion in SDE notation | Hull 12.1, 12.2 | - |
| 27 | F 11/7 | Geometric Brownian motion (the model for stock prices) | Hull 12.3. | - |
| - | - | Estimating the parameters in the GBM model from daily data | Handout: from random walk to GBM | - |
| 28 | M 11/10 | Binomial trees for American options | Hull section 11.5, p. 250 | - |
| - | - | The Black-Scholes formula | Hull section 13.8, p. 295 | - |
| 29 | W 11/12 | Ito's lemma | Hull 12.5, and appendix. Handout | HW 8: p. 262: 11.17, 11.18, 11.19. Also p. 306: 13.4, 13.13 (Do the last two by hand using the BS formula.) Due 11/17 |
| 30 | F 11/14 | The Black-Scholes-Merton PDE | Hull Section 13.6, p. 291 | - |
| 31 | M 11/17 | - | - | - |
| 32 | W 11/19 | Video: The trillion dollar bet about Long Term Capital Management (currently on reserve at Library) | Hull business snapshot p. 30; the book When Genius Failed; Wikipedia reference | - |
| 33 | F 11/21 | - | - | - |
| 34 | M 11/24 | Introduction to Derivagem | Handout | - |
| - | - | Implied volatility; volatility smiles | Hull 13.11 (p. 300); 16.3 (p. 379) | - |
| 35 | M 12/1 | The value of a forward contract | Hull 5.7 p. 107 | - |
| 36 | W 12/3 | Currency options | Hull 5.10 p. 112 | - |
| 37 | F 12/5 | Delta the Greek | - | - |
| 38 | M 12/8 | Guest spreaker: Jan Albano, Associate Treasurer: The college's finances | - | - |
| 39 | W 12/10 | Testing stocks for GBM (handout) | - | - |
| - | - | The Monte Carlo method for evaluating derivatives (handout) | - | - |
| 40 | F 12/12 | Course summary | - | HW 9: Testing stocks for GBM (Extra credit; due at the end of exam period) |
| - | - | - | - | HW 10 (extra credit): Solve problems 13.4 and 13.13 (Hull) in three ways: (1). Via the BS formula (use Derivagem); (2) Via trees (use Derivagem). Write down the answers for 6, 7, 8, 9 and 10 steps. If possible, print out the ten-step tree (on one sheet of paper) (3) Via the Monte Carlo method. (Due at the end of exam period) |