This document provides information about a financial instruments class being offered at the University of Chicago Booth School of Business in Autumn 2020. It outlines the class schedule, exams, assignments, grading policy, and expectations. The class will be held online and follow UChicago COVID-19 safety guidelines. Students are expected to participate actively in class discussions and complete problem sets, a case write-up, and midterm and final exams. The grading policy weights these assessments and exams. Required and optional textbooks are also listed.
This document provides information about a financial instruments class being offered at the University of Chicago Booth School of Business in Autumn 2020. It outlines the class schedule, exams, assignments, grading policy, and expectations. The class will be held online and follow UChicago COVID-19 safety guidelines. Students are expected to participate actively in class discussions and complete problem sets, a case write-up, and midterm and final exams. The grading policy weights these assessments and exams. Required and optional textbooks are also listed.
This document provides information about a financial instruments class being offered at the University of Chicago Booth School of Business in Autumn 2020. It outlines the class schedule, exams, assignments, grading policy, and expectations. The class will be held online and follow UChicago COVID-19 safety guidelines. Students are expected to participate actively in class discussions and complete problem sets, a case write-up, and midterm and final exams. The grading policy weights these assessments and exams. Required and optional textbooks are also listed.
This document provides information about a financial instruments class being offered at the University of Chicago Booth School of Business in Autumn 2020. It outlines the class schedule, exams, assignments, grading policy, and expectations. The class will be held online and follow UChicago COVID-19 safety guidelines. Students are expected to participate actively in class discussions and complete problem sets, a case write-up, and midterm and final exams. The grading policy weights these assessments and exams. Required and optional textbooks are also listed.
Students in this class are required to adhere to the standards of conduct
in the BSB Honor Code and the BSB Standards of Scholarship
GENERAL INFORMATION Schedule of Classes, TA Sessions and Examinations
Section 35100-81 35100-85 20405-01
Class times Thursdays 6:00-9:00 Saturdays 9:00-12:00 Tuesday/Thursday 9:40-11:00 Location Online and GC406 Online and GC200 Online Review times Saturdays 12:15-1:15 Saturdays 12:15-1:15 Fridays 12:15-1:15 Location Online Online Online Midterm exam October 22, 6:00-7:20 October 24, 9:00-10:20 October 27, 9:40-11:00 Final exam December 3, 6:00-9:00 December 5, 9:00-12:00 December 10, 10:30-1:30
Quote from Past Class
“GC is hilarious. Jokes kept class interesting. No weaknesses. He is a straight savage. I also liked how he cold called. It kept everyone alert.”
Office Hours I invite you to email or call me during business hours to talk about the course, your career plans, and interesting problems in general.
Teaching Assistant and Review Sessions
The TA is Arjun Gopinath arjung@uchicago.edu. Arjun conducts review sessions almost every week at the above posted times and locations. At these sessions, he discusses the problem sets that have been assigned and posted. If you like him to discuss other related questions during the session, please email him your questions at least two days prior to the review session. Arjun does not have office hours.
Each review session is announced in the preceding class. Do not assume that review sessions are 1 held every week. If you miss the announcement in class regarding a review session, please contact Arjun for confirmation. If you have questions that have not been addressed during the review session, feel free to contact Arjun via email. He responds within one business day.
Please remember that I am ultimately responsible to see that you learn and benefit a great deal from this class. The TA is meant to help you but not to serve as a buffer between you and me. Feel free to send me an email at all times.
Graded Class Participation
I expect registered students to read the assigned material for the week ahead of the class and participate in the class discussion. As encouragement, I call on students in class to answer questions and award up to 6 points per student for class participation. If you plan to miss a class or attend a different section in a certain week, please inform me by email ahead of time. One of my past students summarized cold calling as follows: As much as I don’t like cold calling, it did help.
Problem Sets Six problem sets are assigned and are posted on the course web site. I encourage teamwork. However, each student should write up the answers independently and post them with only one name on it. Identical write-ups are not accepted. The answers should be posted as a Word or pdf file on the course web by the due date and time. I do not accept either faxed assignments or assignments emailed to me or the TA.
I disregard one assignment that you have either not posted or one on which you have earned your lowest score. The grade is based on the remaining five assigned and posted problem sets. Each problem set is marked in the gradebook with either a check plus “√+” (2 points) or a plain check “√” (zero points, recorded in the grade book as “K”), based on effort and not on correctness. Therefore, if your problem set is marked with a check plus, do not assume that your answers are correct because you may have earned the check plus for effort alone. If you do not post in a problem set for a certain week, you earn zero points and this is recorded in the grade book as “0”.
Cases We will discuss four cases but only one (Premier Foods PLC) is to be posted and is worth 4 points. At most four students can work on the case write-up, with all names listed on the write-up. I do not accept either faxed cases or cases emailed to me or the TA.
Examinations There is a midterm examination lasting 80 minutes and a final comprehensive examination lasting 2.5-3 hours. Both examinations are held with open books and notes on line. Make sure that you have access to a calculator and a table of the cumulative normal distribution. Hull provides tables of the cumulative normal distribution.
You must take both examinations on the appointed dates and in the section in which you are 2 registered. Please inform your employer about this policy. If there are extenuating circumstances, please discuss them with me well ahead of time and I will give you permission in writing to do otherwise.
Each student must sign the following pledge on each examination, before posting the examination: “I pledge my honor that I have not violated the Chicago Booth Honor Code during this examination.” If a student does not sign the pledge before posting the examination, I am obliged to treat the examination as if it were not posted.
Grades The maximum total score is 120 points and is calculated as follows:
X participation X assignments X cases max 0.3 X M 0.7 X F , 0.2 X M 0.8 X F
where X participation = score on class participation (maximum 6 points) X assignments = score on assignments, 2 points each (maximum 10 points) X cases = score on case (maximum 4 points) XM = score on the midterm examination, maximum 100 points XF = score on final examination, maximum 100 points
The GPA upper bound of 3.33 no longer applies. Students registered in the course on a pass/fail basis are expected to participate in class, post the assignments, and do well on the exams in order to earn a passing grade—a passing grade is not automatically given.
Provisional Grades For students graduating in the autumn quarter, the administration requests from the instructor a provisional grade (D), before the actual course grades become available. My policy is to give a provisional grade if the student fulfills either one of the following two criteria: (1) the midterm grade is not in the bottom 10% of the grade distribution and the student has earned the grade √+ on all (except possibly one) of the problem sets assigned by the 7th week or, (2) the midterm grade is not in the bottom 20% of the grade distribution.
Required Text • Options, Futures, and Other Derivatives, by John C. Hull, Prentice Hall, 2018, 10th edition, ISBN-13: 9780134472089. Also paperback. • Options, Futures, and Other Derivatives: Solutions Manual, by John C. Hull, Prentice Hall, 2018, 10th edition.
3 Optional Text • Derivatives Markets, by Robert L. McDonald, Pearson Addison Wesley, 2013, 3rd edition, ISBN-13: 9780321543080; ISBN-10: 0321543084. • Forgotten Calculus, by Barbara L. Bleau, 2003, 3rd edition, Barron’s. (A refresher calculus book)
Fun Texts • The Derivatives Game, by Nigel Foster, 2018, UK. • Flash Boys, by Michael Lewis, 2014, Norton. • The Big Short, by Michael Lewis, 2011, Norton. • Boomerang: Travels in the New Third World, by Michael Lewis, 2011, Norton. • The Myth of the Rational Market, by Justin Fox, 2009, Harper Business. • The Quants, by Scott Patterson, 2008, Crown Business. • Risk Takers: Uses and Abuses of Financial Derivatives, by John E. Marthinsen, 2008, 2nd edition, Pearson Prentice Hall.
Course Expectations I expect that students in this course will be actively engaged and on camera while on Zoom. If you require an exception, please contact me directly.
All students on campus are required to adhere to the guidelines in the UChicago HealthPact in order to promote a safe environment in the classroom. • Secure face coverings must be worn appropriately at all times during class. • Maintain a distance of 6 feet from others. • Do not attend an in-person class if you feel unwell or are experiencing COVID-19related symptoms. • If you were potentially exposed to COVID-19 or your COVID-19 test results come back positive, reach out immediately to C19HealthReport@uchicago.edu.
Do not record, share, or disseminate any course sessions, videos, transcripts, audio, or chats. Do not share links for the course to those not currently enrolled. Any Zoom cloud recordings will be automatically deleted 90 days after the completion of the recording.
Students who have been exposed to or who are experiencing symptoms of COVID-19 should contact UChicago Student Wellness immediately to be tested, and reach out to their area Dean of Students to request accommodations for classes until: • at least 10 days have passed since symptoms first appeared and • at least 3 days (72 hours) have passed since recovery-defined as resolution of fever without the use of fever-reducing medications and improvement in respiratory symptoms (e.g., cough, shortness of breath).
4 Accommodations The University of Chicago is committed to ensuring the full participation of all students in its programs. If you have a documented disability (or think you may have a disability) and, as a result, need a reasonable accommodation to participate in class, complete course requirements, or benefit from the University's programs or services, please contact Student Disability Services as soon as possible. To receive a reasonable accommodation, you must be appropriately registered with Student Disability Services. Please contact the office at 773-702-6000 or disabilities@uchicago.edu, or visit the website at disabilities.uchicago.edu. Student Disability Services is located at 5501 S. Ellis Avenue.
If you have an approved accommodation from Student Disability Services that you plan to use in this course, please contact Academic Services (AcademicServices@lists.chicagobooth.edu) as soon as possible. Academic Services will provide support to you and your instructor and coordinate the details of your accommodations on your behalf.
5 READING LIST I list the problems from Hull that are relevant for the material covered each week. These problems are not part of the homework assignments. Some of these problems are repetitive. Do as many or as few of these problems as you deem necessary to consolidate your understanding of the material. The answers are provided in the Solutions Manual, one of the books that you are required to purchase.
For each week, I also list the relevant chapters from McDonald’s textbook (McD). This material is optional reading. You should read it if it helps you consolidate your understanding of the required material.
The reading list below is preliminary. Each week, I will be finalizing the readings for that week. Please visit this weekly updated document regularly under “Syllabus”.
PRE-WEEK 1
Please review this material before the course begins so that you are not overwhelmed by the material covered in the first two weeks of classes, particularly if you have no prior exposure to finance.
• Introduction to forward contracts, futures contracts, and options: Hull Ch. 1.
(Relevant problems from Hull: 1.1-1.40)
• Mechanics of futures markets: Hull Ch. 2.
(Relevant problems from Hull: 2.3-2.4, 2.10-2.17, 2.20, 2.24-2.25)
• Mechanics of options markets: Hull Ch. 10.
(Relevant problems from Hull: 10.1-10.22)
• Measuring interest rates, continuous compounding, and yields: Hull Ch. 4.1-4.6. (Relevant problems from Hull: 4.1-4.5, 4.9-4.14)
First class assignment: Assignment 0 which you download from the course web site but do not post. The answers are already posted.
WEEK 1 September 24, 26 MBA; September 29, October 1 college
• Introduction to forward contracts, futures and swaps: LN 1 (lecture note 1); Hull Ch. 1 and 2. (Relevant problems from Hull: 1.1-1.40, 2.3-2.4, 2.10-2.17, 2.24-2.25)
(Relevant problems from Hull for interest rate and currency swaps: 7.1-7.16)
(McD Ch. 5, 6, 7, 8)
WEEK 3 October 8, 10 MBA; October 13, 15 college
• Case #2 “Premier Foods PLC: Interest Rate Swaps”.
• Introduction to options: Hull Ch. 10.1-10.8.
(Relevant problems from Hull: 10.1-10.7, 10.9-10.17, 10.19)
• The put-call parity and related restrictions on option prices implied by the absence of arbitrage): LN 4; Hull Ch. 11. (Relevant problems from Hull: 11.1-11.21)
• Elementary trading strategies, slope restrictions, convexity, and the box spread: further implications of the absence of arbitrage. LN 5; Hull Ch. 12. (Relevant problems from Hull: 12.1-12.4, 12.7-12.19)
(McD Ch. 9)
WEEK 4 October 15, 17 MBA; October 20, 22 college
• Assignment 2 is due. 7 • The early exercise of American options: LN 6.
• Binomial option pricing: LN 7; Hull Ch. 13.
(Relevant problems from Hull: 13.1-13.18)
WEEK 5 • Thursday MBA section: MIDTERM EXAMINATION October 22 first 80 minutes; 20-minute break followed by regular class. • Saturday MBA section: MIDTERM EXAMINATION October 24 first 80 minutes; 20-minute break followed by regular class. • College section: MIDTERM EXAMINATION October 27. • College section: Regular class October 29.
• Case #3 “Leland O’Brien Rubinstein”. Do not post.
• Binomial option pricing: LN 7; Hull Ch. 13.
(Relevant problems from Hull: 13.1-13.18)
(McD Ch. 10, 11)
WEEK 6 October 29, 31 MBA; November 3, 5 college.
• Assignment 3 is due.
• Using the binomial model: LN 8; Hull Ch. 21.1-21.3, 21.5.
(Relevant problems from Hull: 21.2, 21.4, 21.10-21.14, 21.19)
