1. Overview and required text: 2. Evaluating your performance:

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Alberta School of Business

Department of Finance and Statistical Analysis FINANCE 413 – Risk Management

Sections B1 & B2, Winter 2013

Instructor: Gary Smith, Ph.D., CFA Phone: 780-492-7340

Office: 3-40K Business Building e-mail: [email protected] Office Hours: T, R 13:30 – 15:00

or by appointment

1. Overview and required text:

My goals in FIN 413 are to provide students with the theoretical basis for valuing derivative securities, a sense of how markets for such contracts work, and a practical understanding of how one might use such contracts in practice. As such, the official title of the course, “Risk

Management”, is a misnomer. A more appropriate title is “Derivative Contracts: Pricing and Uses”.

I will use practical examples rather than formal mathematics to describe concepts whenever possible; however, due to the highly mathematical nature of the study of derivatives, complete avoidance of mathematical concepts is inadvisable, if not impossible. Please do not be intimidated by this as I will provide appropriate background as required.

Required text: Fundamentals of Futures and Options Markets, 7th Edition, by John C. Hull, Prentice Hall, 2011

Also, the Solutions Manual and Study Guide for this textbook is strongly recommended.

2. Evaluating your performance:

The table below explains how I will evaluate your performance. Note that the dates are tentative.

Should they need to be changed, I will give you as much advance notice as I can.

Task Weight in

final grade Tentative dates 2 mid-term examinations

(exam coverage TBA) 30% each February 14 March 21

Cumulative final exam 40% TBA

In addition, from time to time I will recommend exercises that are not for credit.

The grade distribution for those students achieving a passing grade will likely be close to, but not exactly equal to, the grade distribution suggested by the University for 400-level courses, which is as follows:

Grade A+ A A- B+ B B- C+ C C- D+ <=D

% of class 8 12 17 16 16 12 7 5 3 2 2

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FIN 413 Syllabus Winter 2013

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3. Tentative order of topic coverage:

Topic

Related Chapter

Introduction Ch. 1

Mechanics of Futures Markets Ch. 2 Hedging with Futures Ch. 3

Interest Rates Ch. 4

Forward and Futures Prices Ch. 5 Interest Rate Futures Ch. 6

Swaps Ch. 7

Mechanics of Option Markets Ch. 9 Properties of Options Ch. 10

Trading strategies Ch. 11

Binomial Trees Ch. 12

Black-Scholes-Merton Ch. 13 - 15

The Greeks Ch. 17

4. How to get in touch with me:

4.1. Drop in during office hours. Also, I am open to setting appointments outside of these hours.

Ask me and I’m sure we can work out a mutually convenient time.

4.2. Send me an email at [email protected]. Please write FIN 413 in the subject line.

Here are a few thoughts about email:

4.2.1. Do not expect immediate responses to email. While this might happen from time to time, my standard is to respond to email by the end of the following business day. This is not guaranteed. It is a goal, not a promise. From time to time, circumstance will prevent me from achieving this.

4.2.2. Email is a poor vehicle for explaining financial concepts, particularly if mathematical notation is required. I’ll do what I can, but often I’ll recommend a meeting if the topic is too cumbersome to deal with via email. Also, if you have many questions, come see me rather than write a long, detailed email. This is generally more effective and easier for both of us.

4.2.3. Email responses may be terse. This does not reflect any irritation on my part; rather, it reflects that fact that I have hundreds of students and I need to be as efficient as I can. If you ask a question that has been covered on uLearn or on the syllabus, you will likely receive “See uLearn” or “See syllabus” as a reply.

4.2.4. Please have reasonable expectations. Sending an email late in the evening the day before an exam with the expectation of a rapid response from me is not reasonable. Also, sending me a half dozen emails over a weekend and expecting detailed responses by noon on Monday is unreasonable. Email is not a substitute for a good study plan and any study plan that demands your instructor’s assistance in the evenings or on weekends is a bad one.

4.3. Phone 780-492-7340. Please leave a message if I don’t answer.

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5. IMPORTANT ADMINISTRATIVE INFORMATION

5.1. Student Behaviour: The University of Alberta Calendar is committed to the highest standards of academic integrity and honesty. Students are expected to be familiar with these standards regarding academic honesty and to uphold the policies of the University in this respect. Students are particularly urged to familiarize themselves with the provisions of the Code of Student Behaviour (online at www.ualberta.ca/secretariat/appeals.htm) and avoid any behavior which could potentially result in suspicions of cheating, plagiarism, misrepresentation of facts and/or participation in an offence. Academic dishonesty is a serious offence and can result in suspension or expulsion from the University.

5.2. Missed examinations: Students who miss any midterm examination due to illness or other extreme circumstance must notify me of such absence. You must provide a reason for your absence and I reserve the right to require that you sign a statutory declaration attesting to your reason for missing the exam. You can notify me in person, by email, or by telephone. If you fail to provide notice, I will declare your absence unexcused. Unexcused absences from exams are assigned a grade of zero.

Those who have an excused absence will not be given a make-up examination. Rather, the weight from the missed examination will be shifted to the final examination. Details about missed exams can be found in the University of Alberta Calendar, § 23.3.

Should you be ill or otherwise incapable of appearing for the final examination at the scheduled time, you must make a formal request for a deferral of the exam with the School of Business’s Undergraduate Office. For this course, any approved deferred exams will be written at 9:00AM on Friday, 10 May 2013.

§ 23.5 of the University of Alberta Calendar has the details of the University’s exam policies.

6. MISCELLANEOUS (BUT IMPORTANT) NOTES

6.1. Check uLearn daily. I use uLearn extensively to post administrative information, readings, recommended exercises, and any other course related items. I expect that you see items posted there in a timely fashion. Also, from time to time I will need to alter office hours due to external commitments. I will post such alterations in advance on uLearn.

6.2. Calculators: I expect that students own a financial calculator and know how to use it.

All examinations will be created assuming you have one. If you are looking to purchase one and if you have any thoughts of taking the CFA designation, you may wish to look at the CFA Institute’s calculator policy before buying. (see

http://www.cfainstitute.org/about/governance/policies/Pages/calculator_policy.aspx).

6.3. Attendance: Students often want tips for easy ways to do well in a course. Here’s the best one: Come to class. Here’s another one: Come to class. And here’s one more for good measure: Come to class. You get the idea. We schedule classes for a reason. There is a

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misconception that reading PowerPoint slides is an effective substitute for class attendance. It is not. The slides are a guideline to the topics, not the whole story, not by a long shot. Exams are based primarily on what we cover in class and not all of this material is on the slides. Should you miss a class, you are responsible for obtaining from your classmates any information you miss due to absence, not from me. Further, I assume that all students are aware of any administrative announcements I make in class or that I post on uLearn.

6.4. Recommended exercises: From time to time I will recommend exercises that are not to be submitted for grading. Do them. They will improve your understanding of the material and your ability to answer questions on examinations. Often, similar questions will appear on examinations. If you want more practice problems than the textbook and I provide, I encourage you to go to the library. There are many, many books on derivatives and risk management, some of which have problems with solutions.

6.5. Exams and allowed examination materials: Students may bring one loose standard 8.5 by 11 (inches) piece of paper with writing on both sides to exams. You may write anything you want on this, any way you want. Calculators are also allowed (see note on calculators above).

Every year someone has his or her calculator die during an exam, or has problems with writing tools, or forgets the allowed formula/note sheet/calculator, or something like this. I cannot lend you materials or make other allowances for such things. Students are responsible for ensuring that they have all allowed materials and that these materials are in good working order.

Exams will focus almost exclusively on what we have covered in class. Most - not all - class material is covered in the textbook, although there may be some items that are exclusive to the notes, our classroom discussion, or to materials distributed via uLearn. From time to time I may assign a section of the text or a reading that I will not cover in class. I will inform you if there is any examinable material from those sections.

6.6. Re-grading of exams: Re-grading requests must be made in writing, with an explanation of how grades do not correspond to the posted answer key. Examinations will always be re- graded in full, and grades changes may occur in either direction. Re-grading requests must be made within one week of the date the examination was returned to students.

6.7. If you don’t understand something during a lecture, please ask a question. If you have a question, chances are that several other students have the same question. Asking me for help during class will save all of us time, effort, and grief.

6.8. If you have questions about what is happening in the world of finance, but are not necessarily directly related to the material at hand, feel free to ask a question in class. I am always happy to discuss these things and, generally, this is a good learning experience for all of us.

6.9. Policy about course outlines can be found in §23.4(2) of the University Calendar.