FIN480-01 Course Syllabus Department of Economics & Finance ...

Course Title:
FIN480-01 – Options and Futures Markets
Term:
August ~ December, 2006
Classes Meet:
Tu/Th: 12:00 p.m. – 1:15 p.m. in MH107
Prerequisite:
FIN301, FIN360
FIN480-01 Course Syllabus
Department of Economics & Finance
University of Dayton
Professor:
Dr. Carl R. Chen
Office: Room 505 Miriam Hall
Phone: (937) 229-2418
E-mail: chen@udayton.edu
Website: http://academic.udayton.edu/carlchen/
Office Hours:
M/W 11:30a.m. - 12:45 p.m.
T/TH 2:15 p.m. - 3:30 p.m.
Others by appointment
Textbook:
Don M. Chance. An Introduction to Derivatives and Risk Management,
South-Western Publishing, 6 th edition, 2004.
Supplementary Materials:
Wall Street Journal,
World Wide Web Sites,
CBOE New Letters,
Financial Engineering News Letters,
X_Trader 7,
Journal of Futures Market,
Journal of Derivatives.

Course Objectives and Description:
Methodology:
The purpose of this course is to extend the student's knowledge of security valuation by
examining the structure, valuation, and uses of derivative contracts. The course develops a
general, but rigorous framework for valuing futures and options contracts and shows the
interrelations between these contract markets and the markets for the underlying securities.
Specific examples are drawn from derivative contract markets on stocks, stock indexes,
debt instruments, and foreign currencies.
The first part of the course will focus on the options markets, options pricing, and options
trading strategies. The second part of the course will be devoted to the pricing of the futures
contracts, and futures trading strategies. Wall Street Journal articles, CBOE News Letters,
and Financial Engineering News Letters that are related to the derivatives will be discussed
in the class.
Although lecture is the principal class format, I encourage all students to engage in
discussions. Interactive instructing methodology is the key to successful learning. Students
should participate in the class discussion by asking and answering questions and by
presenting information relevant to the topic area. Lectures are needed to present the
concepts, but questions and discussions are likewise necessary in order to clarify
misconceptions and explore certain topic areas. All lecture notes will be posted on my web
site and they can be downloaded in PDF format. You should read the class notes before
class.
Class Attendance:
Class participation is mandatory. A 5-point credit will be deducted from your “class
attendance credit” for each additional class missed after allowable two absences. Class
attendance is very important to your doing well in this class. Furthermore, you are
responsible for knowing everything that happens in the class including announcements of
any changes in test dates that may be necessary.
Homework Assignment:
All homework assignments are due on the following Tuesday after the date of the
assignment. Homework could be in the form of end-of-chapter problems, take home short
projects, or take-home quizzes. Grade of late homework is subject to the following discount
on a daily basis: 10% first day; 20% second day; 40% third day; 50% fourth day and after.
No homework will be accepted after the solutions are posted on my web.
Tests and Final Exam:
There will be two tests during the semester and a final exam in the last week of the
semester. All tests and final exam have two components: multiple choices and problem

solving. You are permitted to bring one 5 x 6 index card with anything you wanted
written on it for the exam. Honor code is strictly enforced in the exam. Any cheating or
attempt to cheat will automatically result in a failing grade in the course. You must turn
in your exam when the time is over. I will not accept any exam that is turned in seconds
late. The university policy requires that all students take final exam. Failure to comply
with this policy may result in a failing grade in the course.
Policy on Make-up Test & “Extra Credit”:
You are expected to take tests and exam at the scheduled time. Make-up exams are rarely
granted. Students who have to miss a test with legitimate reasons such as personal or family
emergency may request in advance, in writing, for a make-up. Such written requests must
be submitted before the scheduled test, and I will decide on the make-up date. I will not
grant any “extra credit” for extra work; you have plenty opportunities to perform well in the
class.
Grading and Evaluation:
Grading will be based on two tests, a final exam, class attendance credit, and homework
assignments. The breakdown of the total points is:
Tests & Exam: 100 points each; 300 points in total
Homework assignments: 125 points
Class attendance: 30 points
Final course letter grades will be assigned to your weighted course average computed
above, as follows:
Letter Grade Quality Points Total Course Approximate
Points
Percentage Range
A 4.00 432 - 455 95% - 100%
A- 3.67 409 - 431 90% - 94%
B+ 3.33 395 - 408 87% - 89%
B 3.00 368 - 394 81% - 86%
B- 2.67 355 - 367 78% - 80%
C+ 2.33 341 - 354 75% - 77%
C 2.00 318 - 340 70% - 74%
C- 1.67 295 - 317 65% - 69%
D 1.00 263 - 294 58% - 64%
F 0.00 Below 263 Below 58%

Class Schedule
Week Dates Subject Contents Chapter #
1 8/22, 8/24 Introduction to the course
Structure of options Markets
2
2 8/29, 8/31 Principles of options pricing
Principles of options pricing: upper and lower limits
of call and put prices, put-call parity
3 9/5, 9/7 Binomial option pricing model
4 9/12, 9/14 Binomial option pricing model
Black-Scholes option pricing model
5 9/19, 9/21 Black-Scholes option pricing model
Test #1 (9/21)
6 9/26, 9/28 Return and Review 1 st Test
Basic Option Strategies
7 10/3, 10/5 Basic Option Strategies
Advanced Option Strategies
8 10/10, 10/12 Mid-Term Break (10/10); no classes
FMA Conference (10/12); no classes
9 10/17, 10/19 Advanced Option Strategies
Market Structure of Forward and Futures Markets
10 10/24, 10/26 Market Structure of Forward and Futures Markets
Principles of Forward , Futures Pricing & Options on
Futures
11 10/31, 11/2 Principles of Forward , Futures Pricing & Options on
Futures
Test #2 (11/2)
12 11/7, 11/9 11/6: Last day to withdraw
Return and Review 2 nd Test
Futures Hedging Strategies
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Week Dates Subject Contents Chapter #
13 11/14, 11/16 Futures Hedging Strategies
Advanced Futures Strategies – Arbitrage, Implied
Repo, Cost of Carry, Futures Spread, Stock Index
Arbitrage
14 11/21, 11/23 Advanced Futures Strategies – Arbitrage, Implied
Repo, Cost of Carry, Futures Spread, Stock Index
Arbitrage
Thanksgiving Recess (11/23) – No classes
15 11/28, 11/30 Advanced Futures Strategies – Arbitrage, Implied
Repo, Cost of Carry, Futures Spread, Stock Index
Arbitrage
Swaps
16 12/5 Swaps
17 12/13 Final Exam (Wednesday; 2:30 – 4:20 p.m.)
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