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Syllabus & Calendar, 8-27-2018

Rutgers Business School


Derivatives, Fin. 22.839.609.30
Fall 2018, W 9:00-11:50 AM, 1 WP, Class #118
Prof. Harvey Poniachek, Office: 1 Washington Park, Room 1138
Office Hours: M, 1:00-2:00 & W, 3:00-3:50 PM & By App't
harvey.poniachek@business.rutgers.edu

I. COURSE DESCRIPTION AND LEARNING OBJECTIVES


This course is designed to introduce finance students to the theoretical and practical
aspects of the derivative markets, that includes financial futures, swaps and options. The
derivative markets have grown enormously and emerged as important tools of modern
finance, used by corporation and portfolio managers for hedging, arbitrage and
speculation.

The emphasis in this course is on the market setting, pricing and uses of derivative
instruments in hedging, arbitrage and speculation that requires a considerable use of
quantitative methods and theoretical reasoning. This course consists of three parts. The
first part deals with the futures markets, pricing of futures contracts, hedging and swaps.
The second part deals with the options markets, strategies and pricing. The third part
deals with applications and problem solving and it’s integrated into the first two parts.

The course comprises of lectures, discussions and problem solving, and it’s analytically
intensive. The pace is relatively fast and advanced concepts build quickly upon each
other. Students should attend all the lectures, read the assigned chapters, and do the
assigned homework. Reading ahead of the scheduled lectures could be very beneficial.
Working with another student or students could be beneficial in mastering the material.

A successful completion of this course will provide you with the essentials of the
derivatives market institutional knowledge and analytical skills. The applied skills that
you’ll acquire include ability to perform valuation of futures, swaps and options by
utilization of the most common pricing models that are used by corporate practitioners
and academics, assess risks and be able to design effective risk immunization strategies.

II. TEXTBOOK, SUPPLEMENTARY REFERENCES AND CALCULATOR


Required textbook
1. John C. Hull, Fundamentals of Futures and Options Markets, 9th ed., Pearson,
2017 ISBN 13 978-0-13-408324-7

2. John C. Hull, Solution Manual and Study Guide for John C. Hull, Fundamentals of
Futures and Options Markets, 9th ed., Pearson, 2017

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3. Handout #1, Prof Harvey Poniachek, to be posted on Blackboard and distributed
in class

The above textbook is deemed among the best in the market and as one of the industry’s
standard references that will provide you with an outstanding grasp of the subject.

Most class materials, including lecture notes, homework assignments, and


supplementary materials, including spreadsheets and sample problems, will be posted
on Blackboard.

Supplementary References
1. John C. Hull, Options, Futures, and Other Derivatives, 10th Ed., Pearson, 2018,
ISBN 10- 0-13-447208X; ISBN 13-978-0-13-4472089
2. David A. Dubofsky and Thomas W. Miller, Jr., Derivatives: Valuation and Risk
Management, Oxford University Press, 2003
3. Rangarajan K. Sundaram and Sanjiv R. Das, Derivatives: Principles and
Practice, 2nd Ed., McGraw-Hill Education, 2016
4. Don M. Chance and Robert Brooks, An Introduction to Derivatives and Risk
Management, 8th Ed., South Western Cengage Learning, 2010
5. Sheldon Natenberg, Option Volatility & Pricing: Advanced Trading Strategies and
Techniques, 2nd Edition, McGraw Hill 2015
6. Robert L. McDonald, Derivative Markets, 3rd Edition., Pearson, 2013

Calculator
The examples in the textbook chapters and the homework assignments require the use
of a financial calculator or Microsoft Excel. The financial calculator for this class is the
TI BA-II Plus. A programmable calculator will not be allowed during the exams.

III. EXAMS, GRADING AND ASSIGNMENTS


A midterm exam worth 30%, a cumulative final 40%, quiz 10%, assignments 10% and
class performance1 10%. The grading scale is as follows:

GRADE SCALE
LETTER GRADE GPA VALUE
%

A 4.0 90.0 -100

B+ 3.3 87.1 - 89.9

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Class performance requires class attendance throughout the semester and includes the
following:
1. Participation in class discussions,
2. Answering questions raised in class and/or directed to you, and
3. Presentation and discussion of assigned homework problems.

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B 3.0 80.0 - 87.0

C+ 2.3 77.1 - 79.9

C 2.0 70.0 - 77.0

D+ 1.3 67.1 - 69.9

D 1.0 60.0 - 67.0

F - 0.0 - 59.9

The exams are closed book, but you’re allowed to bring in a one sided 8x11 page of a
formula sheet. There will be no make-up exams, except for documented emergencies.

To facilitate more effective learning, students should work in teams of up to four (but not
more) on homework assignments. Select homework assignments will be discussed in
class. Two assignments will be collected and graded, however, late submissions of
homework will be penalized by 10 points and no assignments will be accepted after the
solutions were posted on Blackboard.

IV. ATTENDANCE, ACADEMIC INTEGRITY


Attendance is mandatory and you need to be in the classroom on time and leave on time.
Attendance will be taken each class and late arrival will be treated as an absence.

Academic Integrity: Rutgers strictly enforces the university rules on academic integrity “…
The use of unauthorized material, communication with fellow students during an exam,
attempting to benefit from the work of another student, and similar behavior that defeats
the intent of an examination or other class work is unacceptable to the University. It is
often difficult to distinguish between a culpable act and inadvertent behavior resulting
from the nervous tensions accompanying examinations. Where a clear violation occurs,
however, the instructor may disqualify the student’s work as unacceptable and assign a
failing mark on the paper.”

All students are expected to know, understand and live up to the standards of academic
integrity and code of student conduct that are fully addressed in the following sites

http://judicialaffairs.rutgers.edu/academic-integrity
http://judicialaffairs.rutgers.edu/university-code-of-student-conduct

V. STUDENT WITH DISABILITIES


Students whose in-class performance on the exams could be adversely affected by a
disability could discuss their issue with the office for students with disabilities in order
to accommodate their needs. The professor should be notified ahead of time if exams
are to be administered at the above office.

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VI. COURSE OUTLINE AND CALENDAR
1. Introduction
9/5 Course overview and the syllabus
Intro to Financial Risk and Derivatives2 Ch 1

2. Futures & Swaps


9/5, 12 Mechanics of Futures Markets 2
9/19, 26 Hedging With Futures 3
10/3 Interest Rates 4
10/10 Determination of Forward & Futures Prices , 5
10/17 Interest Rate Futures , 6

10/24, 31 Swaps 7

10/31 In Class Midterm Exam

3. Options
11/7 Mechanics of the Options Markets 9
11/7 Properties of Stock Options 10
11/14 Options Trading Strategies 11
11/28 Introduction to Binomial Trees & Applications 12, 18
12/5 Black-Scholes Model 13
12/12 Options on Indices, Currencies, and Futures 15, 16
12/12 Greek Letters & Value at Risk 17

12/12 Course Review

12/19 In Class Final Exam

4. Applications
 Homework Assignments include select end of chapter problems;
 In-class review and discussion of select textbook examples and homework
problems;
 Two Homework Assignments to be collected and graded; and
 Review and analysis of hedging and arbitrage with derivatives.

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Meulbroek, Lisa “A Senior Manager’s Guide to Risk Management”, Journal of Applied
Corporate Finance, vol. 14 # 4, Winter 2002; John C. Hull, Risk Management and
Financial Institutions, 3rd Ed., Wiley 2012, Ch. 1