FIN 465 Derivative Securities and Markets
Text: Hull, 8 th edition
Naresh Bansal
Learning Objectives
No arbitrage argument for valuing options
Risk-neutral valuation approach
Valuing options using multiple-step binomial trees
Valuing:
i.
ii.
iii.
iv.
Ame
FIN 465: Derivative Securities & Markets
Team Assignment
Due Date: December 05, Thursday - at the beginning of the class1
General Instructions
No late submissions will be accepted. Don't wait till the last minute!
You can work in teams of not less than 2
FIN 465: Derivative Securities & Markets
Exam 3: Units 7,8, 9 (Chapters 13, 17, 7)
STUDY GUIDE
Start with the class notes (Anything covered in the class is fair game for the test!)
After reviewing the notes, read the assigned chapters focusing on the foll
FIN 465: Derivative Securities & Markets
Exam 2: Units 4,5, 6 (Chapters 9 - 12)
STUDY GUIDE
Start with the class notes. Then, read the assigned chapters focusing on following items:
Unit-4: Chapter 9 and 10
Payoff diagrams (and their limitations)
o Revie
STANDARD NORMAL DISTRIBUTION: Table Values Represent AREA to the LEFT of the Z score.
Z
-3.9
-3.8
-3.7
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-3.5
-3.4
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-3.2
-3.1
-3.0
-2.9
-2.8
-2.7
-2.6
-2.5
-2.4
-2.3
-2.2
-2.1
-2.0
-1.9
-1.8
-1.7
-1.6
-1.5
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-1.3
-1.2
-1.1
-1.0
-0.9
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-0.7
-0
Introduction
Chapter 1
Fundamentals of Futures and Options Markets, 8th Ed, Ch 1, Copyright John C. Hull 2013
1
The Nature of Derivatives
A derivative is an instrument whose value
depends on the values of other more
basic underlying variables
Fundamentals
The Greek Letters
Chapter 17
Fundamentals of Futures and Options Markets, 8th Ed, Ch 17, Copyright John C. Hull 2013
1
Example (Page 365)
A bank has sold for $300,000 a European call
option on 100,000 shares of a non-dividendpaying stock
S = 49, K = 50,
FIN 465: Derivative Securities & Markets
Exam 1: Units 1,2,3 and 4 (Chapters 1,2,3,5, 9 and 10)
Sample Test Questions
The purpose of this document is to give you some additional practice before the test. However, if you are
relying solely on these questio
FIN 465 Derivative Securities and Markets
Text: Hull, 8 th edition
Naresh Bansal
Learning Objectives
Understanding the functioning of the futures market
Understanding what determines the forward/futures prices
Readings
Hull: Chapter 2, Section 4.2, Ch
CHAPTER 1
Introduction
Practice Questions
Problem 1.8.
Suppose you own 5,000 shares that are worth $25 each. How can put options be used to
provide you with insurance against a decline in the value of your holding over the next four
months?
You should buy
F IN 465 Derivative Securities and M arkets
Naresh Bansal
Learning Objectives
No arbitrage argument for valuing options
Risk-neutral valuation approach
Valuing options using multiple-steps binomial tree
Valuing:
i.
ii.
iii.
iv.
American-style options
Opt
Lecture 10
Q. You are given the following payoff diagram
Which of the following combinations results
in this payoff at time T?
I) Long stock, short call
II) Long stock, long put
III) Long stock, short call, short bond
IV) Long stock, long put, short bond
F IN 465 Derivative Securities and Markets
Text: Hull, 8 th e dition
Naresh Bansal
Learning Objectives
Understanding the various risk management approaches used
by an option writers
Learning the different Greek letters in option valuation
Readings
Hul
F IN 465 Derivative Securities and Markets
Text: Hull, 8 th e dition
Naresh Bansal
Learning Objectives
Introducing some of the swap products (other than the plain
vanilla interest rate and currency swaps)
Readings
Hull: Chapter 7.16 & 22.3 & Notes
Stu
F IN 465 Derivative Securities and Markets
Text: Hull, 8 th e dition
Naresh Bansal
Learning Objectives
Introduction to swaps how they are designed, how they can
be used, and how they can be valued.
Understanding two popular swaps: (1) plain vanilla Int
F IN 465 Derivative Securities and Markets
Text: Hull, 8 th e dition
Naresh Bansal
Learning Objectives
Payoff diagrams for long/short positions on call/put options
Functioning of options markets
Factor affecting option price; Put-Call Parity; Early ex
F IN 465 Derivative Securities and Markets
Text: Hull, 8 th e dition
Naresh Bansal
Learning Objectives
Understanding the different kinds of exotic options
Readings
Ch 22.1
Homework
Class Discussion: <Nil>
Study Questions: Ch-22: 1, 8, 9, 12, 16, 17
A
F IN 465 Derivative Securities and Markets
Text: Hull, 8 th e dition
Naresh Bansal
Learning Objectives
Identifying the embedded options/derivatives in various
complex financial instruments
Readings
Class Notes
Study questions
<Nil>
Identify the option
F IN 465 Derivative Securities and Markets
Text: Hull, 8 th e dition
Naresh Bansal
Learning Objectives
Comparing and contrasting BSM model and Binomial model
BSM formulas for valuing European-style options
Extending the model to value (i) options on d
F IN 465 Derivative Securities and Markets
Text: Hull, 8 th e dition
Naresh Bansal
Learning Objectives
How to combine options to produce interesting profit
patterns?
Readings
Hull: Chapter 11
Homework
Class Discussion: <see questions at the end of the
F IN 465 Derivative Securities and Markets
Text: Hull, 8 th e dition
Naresh Bansal
Learning Objectives
Different types of contracts (futures/forwards, options, swaps)
Different type of market participants; difference between
hedgers & speculators
Vari
Michael J Verdeja, Joseph Mendicino
Derivative Team Assignment
Question 1
Consider an American put option on a non-dividend paying stock when the stock price is $60, the strike price is $65, the
risk-free rate is 4%, the volatility is 20%, and the time to