Options Markets, FIN9797, Spring 2009

Options Markets
(FIN9797, Spring 2009)

Section TR6: TTh 6:00-7:15pm, 23rd street, Rm 1323

Course Overview

The objective of this class is to provide students with a basic understanding of the stock and currency options market. Topics include the mechanics of the options markets, stylized behaviors of stock and currency options, basic trading strategies involving options, and the basic pricing and hedging methodologies for options.

Readings

The required textbook for this class is:

John Hull, Options, Futures, and Other Derivatives, 7th edition, Prentice Hall.

You can find supporting materials for this book from the author's homepage, including pdf files of the book chapters:

http://www.rotman.utoronto.ca/~hull/

I have also set up a homepage for this class that tracks the progress of the class (including exam dates) and provides supporting materials:

http://faculty.baruch.cuny.edu/lwu/9797/fin97972009s.html

Another useful book on options market making: Allen Jan Baird, Options Market Making, Wiley, 1993.

Office Hours

Tuesdays, 4-6pm. Or by appointment. Vertical Campus 10-247. Tel: (646)-312-3509. The best way to get in touch with me is via email: liuren.wu@baruch.cuny.edu.

Tentative Course Outline/Schedule

Topics	Textbook Chapters	Approximate Dates
Introduction, Forward & Futures (Exercises)	1,2,3,5	January 27, 29, February 3, 5
Mechanics of options markets	8	February 10, 17
Options trading strategies (Positions and payoffs,Strategy designs)	10	February 19, 24, 26
Properties of options	9	March 3, 5, 10
Review: Summary, Exercises(Solution), Fall 2007 midterm (Solution), Spring 2008 midterm (Solution), Fall 2008 midterm (Solution)	1,2,3,5, 8-10	March 12
Midterm Exam (Solution)	1,2,3,5, 8-10	March 17
Binomial trees	11	March 24, 26, 31, April 2
The Black-Scholes model	12, 13, (14-16)	April 7, 21, 23
Greek letters and hedging (Exercise)	17	April 28, 30
The implied volatility surface	18	May 5, 7
Beyond Black-Scholes	Article	May 12
Review: Summary, Fall 2007 final (Solution), Spring 2008 final (Solution) Fall 2008 final (Solution)	11-16	May 14
Final Exam (Solution)	11,12,13,17,18	May 21, 6-8pm

Supporting materials

Black-Merton-Scholes Model Excel Calculator.

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 course grade will be based on a weighted average of the two exams, with a 70% weight on the higher score and a 30% weight on the lower score. The numeric average scores are converted into letter grades according to the following conversion table:

>=93 100 A

>=90 <93 A-

>=85 <90 B+

>=80 <85 B

>=75 <80 B-

>=70 <75 C+

>=65 <70 C

>=50 <65 C-

0 <50 F

For the exams, you can bring in a formula sheet (letter-size).

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.

You will need a calculator for exercises that we do in class and also for the exams.

Cell phones, beepers, alarms, etc, must be turned off before you enter the class.

>=93	100	A
>=90	<93	A-
>=85	<90	B+
>=80	<85	B
>=75	<80	B-
>=70	<75	C+
>=65	<70	C
>=50	<65	C-
0	<50	F