Alberta School of Business
Department of Finance and Statistical Analysis
FINANCE 413 – Risk Management Section B2, Winter 2011
Instructor: Gary Smith, Ph.D., CFA Phone: 780-‐492-‐7340
Office: 3-‐40K e-‐mail: [email protected]
Office Hours: M, W 13:30 – 15:30 Class: TR 11:00 – 12:20
or by appointment
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.
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 15 March 17
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 with likely be close to, but not 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
FIN 413 Syllabus Winter 2011
2 of 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
Other topics, if time permits TBA How to get in touch with me:
• Drop in during office hours. I have hours scheduled four days a week. 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.
• Send me an email at [email protected]. Please write FIN 413 in the subject line.
• Phone 780-‐492-‐7340. Please leave a message if I don’t answer.
IMPORTANT ADMINISTRATIVE INFORMATION
• The University of Alberta Calendar notes states that “[i]t is the student’s responsibility to be familiar with, and adhere to, the terms of the University of Alberta’s Code of Student
Behaviour.” (p. 82 of print copy). The most recent version of the code can be viewed by clicking
here.
• Students who miss any term examination due to illness or other extreme circumstance will not be given a make-‐up examination. The weight from the missed examination will be shifted to the final examination. Students who have an unexcused absence from any examination will receive a grade of zero on that examination. Click here and read section 23.5.6 for details.
• Students are required to silence their mobile phones during class time. No mobile electronic communication devices of any kind may be accessed during examinations. This means that you cannot use a calculator app on a phone during an exam.
FIN 413 Syllabus Winter 2011
3 of 3
MISCELLANEOUS (BUT IMPORTANT) NOTES
• Check uLearn daily. From time to time I will post administrative information and readings. I will expect that you see them in a timely fashion.
• 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).
• Attendance: Students often want tips for easy ways to do well in a course. Here’s one: come to class consistently. My experience as a student and instructor plainly shows that attendance and performance are highly correlated. That said, attendance is optional, but students are
responsible for obtaining any information they miss due to absence from fellow students, not from me. Further, I assume that all students are aware of any administrative announcements I make in class.
• 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. 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 investments, some of which have problems with solutions.
• Examinations: Students may bring one loose standard 8.5 by 11 (inches) piece of paper with writing on both sides to exams, as well as one book. This book may be either their textbook or a binder with whatever papers the student chooses. The key is that these papers not be loose papers, but contained in the book. Calculators are also allowed. Exams will focus almost exclusively on what we have covered in class. From time to time I may assign a section of the text that I will not cover in class. I will inform you if there is any examinable material from those sections. Most (not all) class material is covered in the textbook, although there may be some items that are exclusive to the notes or to articles distributed via uLearn.
• 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.
• 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.
• 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.
