The Johnson School at Cornell University
Professor George Gao NBA 6730 Fall 2010
Assignment 1
Note: This assignment is due on Thursday, September 9. There are two parts of assignment. Please work on these problems in groups of three to five people, and ha

The Johnson School at Cornell University
Professor George Gao NBA 6730 Fall 2010
Answers to Assignment 0 (Pre-Week 1)
Note: Do not hand in this assignment. This assignment is a self-test so that you can decide on your own whether you have the necessary te

NBER WORKING PAPER SERIES
WHY DOES THE TREASURY ISSUE TIPS? THE TIPSTREASURY BOND PUZZLE Matthias Fleckenstein Francis A. Longstaff Hanno Lustig Working Paper 16358 http:/www.nber.org/papers/w16358
NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts A

The Johnson School at Cornell University
Professor George Gao NBA 6730 Fall 20 010
Assignment 1 (Part I Solution)
1. Amargincallwillbeissuedwhentheaccountbalance dropsbelowthemaintenancemargin ($2000).Sinceweareshortingthefutures,wel osemoneywhenpriceincr

The Johnson School at Cornell University
Professor George Gao NBA 6730 Fall 2010
Assignment 2
Note: This assignment is due on Tuesday, September 21. There are two parts of assignment. You can decide to work on and turn in either Part I or Part II or both.

The Johnson School at Cornell University
Professor George Gao NBA 6730 Fall 20 010
Assignment 2 (Part I Solution)
1. Noticethatthesizeofthecomparativeadvantageis 5.5%4.0%(8.4%8.0%)=1.5%0.4%.=1.1%. Thebanknets0.50oritsservicewewilldesignaco ntractthatmakes

The Johnson School at Cornell University
Professor George Gao NBA 6730 Fall 2010
Assignment 3
Note: This assignment is due on Thursday, October 7. There are two parts of assignment. You can decide to work on and turn in either Part I or Part II or both. P

The Johnson School at Cornell University
Professor George Gao NBA 6730 Fall 20 010
Assignment 3 (Part I Solution)
1.Notation:S=90,C(K=80,=0.5)=11,r=8%/yr,Disan ywherebetween$1to$5pershare. (a)Inordertoavoidarbitrage,thefollowinginequalityshould hold, Fore

NBA 6730: Derivative Securities
Lecture 1: Introduction
08/26/2010 George Gao
Agenda
This lecture introduces forward contracts, futures, and options. We first use some examples to understand the meaning of hedging and the differences between forwards and

NBA 6730: Derivative Securities
Lecture 2: Pricing Forwards and Futures I
08/31/2010 George Gao
Agenda
This lecture answers a central question about forwards and futures pricing: How is the forwards and futures price set relative to the current spot price

NBA 6730: Derivative Securities
Metallgesellschaft AG
09/02/2010 George Gao
I. Overview
Corporate History Major Business
NBA6730-Derivative Securities I
2
1
Metallgesellschaft Refining & Marketing (MGRM) was the U.S. subsidiary of Metallgesellschaft AG

NBA 6730: Derivative Securities
Lecture 3: Pricing Forwards and Futures II
09/02/2010 George Gao
Agenda
This lecture studies how to price Treasury Bill futures, foreign currency futures, and stock index futures. Treasury Bill, index, and currency futures

NBER WORKING PAPER SERIES
ON THE ECONOMIC CONSEQUENCES OF INDEX-LINKED INVESTING Jeffrey Wurgler Working Paper 16376 http:/www.nber.org/papers/w16376 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 September 2010
I am gr

NBA 6730: Derivative Securities
Lecture 12: Option Applications
10/05/2010 George Gao
Agenda
We will see how to apply option pricing theory to the valuation of corporate securities and to the valuation of real investment decisions. Pricing corporate secur

NBA 6730: Derivative Securities
Lecture 11: Option Pricing II
09/30/2010 George Gao
Agenda
We will see how to extend the Binomial pricing model beyond plain-vanilla European calls and puts, and how the Binomial model is related to the well-known BSM model

PracticeQuestionsforFinalExam(withSolutions)
1. An investor enters into 2 futures contracts of frozen orange juice, each for delivery of 15,000 pounds. The current futures price is 160 cents per pound, the initial margin is $6,000 per contract, and the ma

NBER WORKING PAPER SERIES
ARE OPTIONS ON INDEX FUTURES PROFITABLE FOR RISK AVERSE INVESTORS? EMPIRICAL EVIDENCE George M. Constantinides Michal Czerwonko Jens Carsten Jackwerth Stylianos Perrakis Working Paper 16302 http:/www.nber.org/papers/w16302
NATION

Value and Momentum Everywhere
Clifford S. Asness, Tobias J. Moskowitz, and Lasse H. Pedersen
First Version: March 2008 This Version: June, 2009
Abstract We study jointly the ubiquitous returns to value and momentum across eight different markets and asse

Commodity Market Interest and Asset Return Predictability
Harrison Hong Motohiro Yogo
March 25, 2010
Abstract We establish several new ndings on the relation between open interest in commodity markets and asset returns. High commodity market activity, as

Do Peso Problems Explain the Returns to the Carry Trade?
Craig Burnsidey Martin Eichenbaumz , , x Isaac Kleshchelski, and Sergio Rebelocfw_ January 2010
Abstract
We study the properties of the carry trade, a currency speculation strategy in which an inves

FinancialAnalysts Journal Volume 62 . Number 2 02006, CFAInstitute
Facts
and
Fantasies
about
Commodity
Futures
Gary Gortonand K. Geert Rouwenhorst
as w o Forthisstudyof thesimplepropertiesf commodityfutures an assetclass,an equally eighted the returns fco

NBA 6730: Derivative Securities
Lecture 4: Asset Returns in Futures Market
09/07/2010 George Gao
Agenda
This lecture discusses the relations between futures price and expected future spot price. We then look at the returns on futures market, study the por

NBA 6730: Derivative Securities
Lecture 6: Currency Swaps
09/14/2010 George Gao
Agenda
A swap is a financial contract between two counterparties who exchange future cash flows according to a prearranged formula. We study currency swaps in this lecture. Wh

NBA 6730: Derivative Securities
Lecture 7: Interest Rate Swaps
09/16/2010 George Gao
Agenda
An interest rate swap is a financial contract between two counterparties who exchange future cash flows on fixedrate vs. floating-rate interests, according to a pr

NBA 6730: Derivative Securities
Lecture 9: Introduction to Options
09/23/2010 George Gao
Agenda
An option is a contract in which the seller (writer, short) grants the buyer (owner, long) certain contractual rights pertaining the underlying asset or primit

NBA 6730: Derivative Securities
Lecture 10: Introduction to Option Pricing
09/28/2010 George Gao
Agenda
Pricing an option needs assumptions about the behavior of the underlying securitys prices. The basic idea is to construct a replicating portfolio of st

PracticeQuestionsforFinalExam
1. An investor enters into 2 futures contracts of frozen orange juice, each for delivery of 15,000 pounds. The current futures price is 160 cents per pound, the initial margin is $6,000 per contract, and the maintenance margi