UNIVERSITY OF ALBERTA School of Business
Department of Finance & Management Science FINANCE 413 – RISK MANAGEMENT
Dr. Barbara Jamieson Winter 2007
Office: BUS 3-40C Telephone: 492-5721 e-mail: [email protected]
Office hours: Tuesdays 1:30 p.m. – 3:00 p.m., Wednesdays 10:00 a.m. – 11:30 a.m.
Class section: B2
Class times: TR 11:00 a.m. – 12:20 p.m.
Class room: HC L2 Prerequisite: FIN 301
Course Description and Objectives: This course discusses the properties, pricing, and uses of options, forward contracts, futures contracts, and swaps. It has three main objectives:
1. To describe the characteristics of these financial instruments and the markets in which they trade.
2. To provide a theoretical framework for determining their values.
3. To provide an understanding of how they can be applied in risk management.
The course attempts to strike a balance among a discussion of theoretical foundations, institutional details, and practical applications.
Text: The textbook for the course is:
Hull, John C., Fundamentals of Futures and Options Markets, Pearson Prentice Hall, fifth edition, 2005.
It comes with a free solutions manual:
Hull, John C., Solutions Manual and Study Guide – Fundamentals of Futures and Options Markets, Pearson Prentice Hall, fifth edition, 2005
The textbook (together with the free solutions manual) can be purchased at the University bookstore.
Copies of both the textbook and the solutions manual have been placed on Reserve at Rutherford North Library. The call numbers are HG 6024 A3 H84 2005 and HG 6024 A3 H84 2005 sol. man., respectively.
Course package: A package consisting of two cases can be purchased at the University of Alberta Bookstore.
Grading: The marking scheme for the course is as follows:
Homework Assignments 15%
Case Study 15%
Midterm Exam 30%
Final Exam 40%
TOTAL 100%
Homework Assignments: Three homework assignments will be given. The due dates are listed below. Assignments must be submitted to the FIN 413 B2 assignment slot outside the general office located on the third floor of the School of Business building.
The cutoff time for dropping off assignments on the due dates is 3:00 p.m. Assignments handed in after 3:00 p.m. on the stated due dates will not be accepted.
Due Dates for Homework Assignments:
Homework 1 February 7
Homework 2 February 28
Homework 3 April 4
Case Study: This requires answering some questions and submitting a brief report. This work may be done individually or in pairs. Students may choose the person with whom they will work, if they decide to work in pairs. Both names should appear on the final submission. The instructor will assign the same mark to both members of a pair for the work that is done.
Case reports must be submitted to the FIN 413 B2 assignment slot by 3:00 p.m.
on the due date. Case reports handed in after 3:00 p.m. on the due date will not be accepted.
Due Date for Report on Case Study: March 30
Academic Integrity: "The University of Alberta 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 behaviour 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." (Section 23.4(2) of the University Calendar)
Examinations:
1. The exams will be on:
• The material discussed in class.
• The material in the class notes.
• The material covered in the homework assignments.
2. The midterm exam will be on chapters 1 – 7 topics. There will be nothing on the midterm on options.
3. The final exam will focus on chapters 8 – 15 topics.
4. The final exam is scheduled for 9 a.m. – 11 a.m. on Thursday, April 19.
5. More information about the exams will be posted to the class web site closer to the exam dates.
6. You may bring a “formula” sheet to each exam. One standard-sized sheet (or two pages) will be allowed. The only restriction with respect to form and content (other than size) is that the “formula” sheet must be in your own handwriting.
7. You may use a calculator, but use of the text storage feature or any programming feature will not be allowed.
Rereading a homework assignment or exam: If you have a question about marking, speak to the instructor about this within one week of the date that the homework assignment or exam is returned to the class.
Missed Term Work:
1. Any student who misses a homework assignment for a valid reason (medical or other) will be permitted to transfer the weight of that assignment onto the other homework assignments. A student who misses any other term work for a valid reason will be permitted to transfer the weight of that term work onto the final exam. A medical note or other documentation (such as a Statutory Declaration) will be required to prove valid cause. The documentation must be given to the instructor within one week following the missed term work. In the case of absence from the final exam, the student must apply through the Undergraduate Office to write a deferred exam.
2. In the event of illness, if you visit the University Health Centre or your family doctor for medical treatment, they will provide a medical note. But be aware that the University Health Centre will no longer provide a medical note in the
following circumstances:
• Where the missed term work or exam is worth less than 20% of the final course mark.
• Where the student requests a note “after the fact”, that is, after s/he is no longer ill.
3. In the event that you miss term work for a valid reason and do not have a medical note (perhaps you did not go to your family doctor or to the University Health Centre or perhaps your reason for missing the work was not due to illness), you might, in that circumstance, make a Statutory Declaration. You can make a sworn Declaration at the Office of the Registrar, Examinations/Timetabling, Room 120, Administration Building.
Final Grade: Your final grade for the course will be based on the marks you accumulate during the term and will depend on both your absolute and relative standings. Once all the course marks are compiled, students will be ranked and grades will be assigned. If
you achieve a course mark of at least 50%, you will receive a passing grade (that is, a grade of at least D).
Tentative Class Schedule: Recommended readings from the textbook are indicated below.
Dates Topics Readings and Events
January 9 Introduction Sections 1.1 – 1.11
January 11, 16 Futures and Forward Markets
Sections 2.1 – 2.6, 2.10 January 18, 23 Forward and Futures Prices Sections 4.1, 4.2, 5.1 – 5.14 January 25, 30 Hedging with Futures Sections 3.1 – 3.6,
Appendix
February 1, 6, 8 Interest-Rate Futures Sections 4.3 – 4.7, 6.1 – 6.6
February 13, 15 Swaps Sections 7.1, 7.2, 7.4 – 7.10
February 19 - 23 Reading Week
February 27 Options Markets Sections 8.1 – 8.6, 8.8, 8.9, 8.13
March 1 Risk Management
March 6 Stock Options Sections 9.1 – 9.8
March 8 Midterm Exam
March 13 Stock Options Sections 9.1 – 9.8
March 15 Trading Strategies with Options
Sections 10.1 – 10.5 March 20, 22 Binomial Trees Sections 11.1 – 11.8 March 27, 29 The Black-Scholes Model Sections 12.1 – 12.9
April 3 Stock Index and Currency
Options
Sections 13.1 – 13.5
April 5 Futures Options Sections 14.1 – 14.8
April 10, 12 Hedging with Options Sections 15.1, 15.2, 15.4 – 15.8, 15.10