Contents |
Course Title
Financial Derivatives
Course Code
IAM 520
Credit
3(3-0)
Prerequisites
The students who have completed any one of the following courses with a minimum semester grade of DD are allowed to register for this course:
BA 2802 or BA 5802 or IAM 521
Aims
This course is designed to provide a solid foundation in the principles of financial derivatives and risk management. It attempts to strike a balance between institutional details, theoretical foundations, and practical applications. The course equally emphasizes pricing and investment strategies in order to motivate students to start thinking about risk management in financial markets. Parallel to the already increasing attempts to integrate derivative securities and markets into the Turkish financial system, it is believed that this course will fill a gap and students will be exposed to a rather comprehensive coverage of theory and application in the derivatives area. This course is expected to give the students a “competitive advantage” when they enter the job market since “derivatives” is a “hot topic” nowadays and BA4825/5825/IAM520 is one of the very few courses offered on this topic in Turkey!
Outline
- 1st Week: Introduction, The Structure of Options Markets
- 2nd Week: Principles of Option Pricing
- 3th Week: Option Pricing Models: The Binomial Model
- 4th Week: Option Pricing Models: The Black-Scholes Model
- 5th Week: Basic Option Strategies
- 6th Week: Advanced Option Strategies
- 7th Week: The Structure of Forward and Futures Markets
- 8th -9th Week: Principles of Forward and Futures Pricing
- 10th Week: Futures Hedging Strategies
- 11th Week: Advanced Futures Strategies
- 12th Week: Options on Futures
- 13th Week: Foreign Currency Derivatives
- 14th Week: Interest Rate Derivatives
Textbook
- Chance, D. M. and R. Brooks, An Introduction to Derivatives and Risk Management, 7th Edition, Thomson South-Western, USA, 2007 (ISBN: 0324321392)
This book is available for sale at the METU Bookstore.
Supplementary Books
You will need a lot of practice to feel comfortable with solving problems on options, futures and other derivatives. The METU Library carries a variety of books written on derivatives. It is a very good idea to check out some of these books and exercise your brain muscle by solving the end-of-chapter problems that are provided in these books.
Course Requirements
The students will be assigned readings from the textbook and they will be expected to come to class prepared and ready to take part in class discussions.
Attendance is mandatory in this class. Past experience repeatedly demonstrated that students who regularly attend class and read the chapter assignments perform significantly better than students who have an intermittent attendance and who do not keep current in reading the chapters. Every single time you cannot attend class, please inform me in advance via phone or e-mail about your absence and your excuse for this absence.
Resources
You will need a lot of practice to feel comfortable with solving problems on options, futures and other derivatives. The METU Library carries a variety of books written on derivatives. It is a very good idea to check out some of these books and exercise your brain muscle by solving the end-of-chapter problems that are provided in these books.
OTHER NOTES
EXAMS
There will be two midterms and a final. The exam schedule is as follows:
- 1st Midterm: Thursday, March 26, 2009, 17:45 – 20:00
- 2nd Midterm: Friday, April 24, 2009, 17:45 – 20:00
- Final Exam: Wednesday, May 20, 2009, 17:45 – 20:15
GRADING
Your total score in the course will be determined by the following weights:
- Written Assignments ========================== 10%
- Quizzes ====================================== 5%
- Midterm 1 ==================================== 25%
- Midterm 2 ==================================== 25%
- Final ======================================== 35%
No “extra” work above the aforementioned will be accepted or credited.
Makeup Examinations
There will be no make-ups for exams or homework assignments. You may be allowed to miss an exam under the most extreme circumstances and only after stringent verification and approval by the Department. If you do miss Exams 1 or 2, the weight of the exam will be added on top of your final exam weight. For example, if you miss Exams 1 or 2, the weight of 25 percent will be added on top of the weight of your final so that your Final Exam score will have the weight of 60 percent. This makeup policy is not negotiable.
RECITATION HOUR
There is going to be a weekly recitation hour. Teaching assistants from the department are going to work on sample problems on the topics that are covered during class from the previous weeks. These sample problems are made available at the course web page one day before the recitation hour so that you can take a look at them and may be even attempt to solve them before coming to class. Attendance to the recitation hour is not mandatory but highly recommended.
PRESENTATION SLIDES
A copy of the presentation slides is available at the course web page. These slides can be used as chapter summaries and utilized while taking down notes during class.
Other Notes
- • Cellular phones are not allowed during the class.
- • Please arrive on time and do not enter the classroom after I already have entered. If you have to leave early, please inform me in advance.
- • The homework assignments are due at the beginning of the class period. Please note that no late assignments (no matter how late) will be accepted once the class starts.
- • You are encouraged to drop by my office during office hours for questions, concerns, or, suggestions. Outside the office hours, please make an appointment with me in advance, before or after the class, via phone or e-mail. For quick questions that you may have, note that e-mailing is a very efficient means of communicating with me.