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| FINA0009-1 | Options, Futures and Other Derivative Securities
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| Duration : | 24h Th |
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| Credits/ECTS : |
| Master in Economical Sciences, in-depth approach, 1st year | | Premier quadrimestre | | 5 |
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| Master in Management Sciences, in-depth approach, 1st year | | Premier quadrimestre | | 4 |
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| Master in Economical Sciences, didactic approach, 1st year | | Premier quadrimestre | | 5 |
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| Master in Management Sciences, didactic approach, 1st year | | Premier quadrimestre | | 4 |
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| Master in Business Engineering, didactic approach, 1st year | | Premier quadrimestre | | 4 |
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| Master in Economical Sciences, Professional Focus in Economic Policies and Analysis, 1st year | | Premier quadrimestre | | 5 |
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| Master in Management Sciences, professional Focus in Entrepreneurship, 1st year | | Premier quadrimestre | | 4 |
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| Master in Management Sciences, professional Focus, 1st year | | Premier quadrimestre | | 4 |
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| Master in Management Sciences, professional Focus (Full english), 1st year | | Premier quadrimestre | | 4 |
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| Master in Management Engineering, professional Focus, 1st year | | Premier quadrimestre | | 4 |
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| Master en sciences de gestion, à finalité spécialisée en management, 1st year | | Premier quadrimestre | | 4 |
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| Master in Management Sciences | | Premier quadrimestre | | 4 |
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| Holder(s) : | Aline Muller |
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| Language : | Langue anglaise |
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| Course contents : | Over the last two decades, firms have been increasingly challenged by financial price risks due to unpredictable movements in exchange rates, interest rates and commodity prices. The financial markets have responded to this increase in volatility by continuously developing a range of financial instruments, called derivatives, as well as strategies combining these with other traditional financial instruments. As a result, derivative markets have been rapidly increasing in volume for the last twenty years and are today recognised as a corporate finance tool. Not only the officially exchange traded instruments are very popular as hedging or speculative devices, but also privately arranged or Over The Counter contracts attract a wide variety of customers. Any student in Financial Economics should at least have some basic knowledge of the possible uses, users, and pricing of the most important derivative instruments. In this course we aim to provide such knowledge. |
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| Workshops : | The course in organized in two parts: lectures and group meetings. You are requested to prepare the lectures and tutorial meetings (hand-ins). Lecture slides will be made available on the website after each lecture.
During the group meetings, you will be discussing and solving assigned and non-assigned problems of the textbook. An active participation is required and will be graded.
Each week you are required to hand in solutions to an assigned problem set. You should work in groups (2-3 students). |
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| Organization : | Tentative Schedule
This course will start on Friday September 21st and will end on Friday October 26th. In more details, the course has the following schedule:
Lecture 1
In the first lecture a general introduction into the world of derivative instruments will be presented. We will take a first look at futures and options markets, their history, and how futures and options are used by speculators, arbitrageurs and hedgers. Furthermore we will discuss the mechanics of futures, forward and options markets. You should read chapters 1, 2 and 8 in the textbook.
Group meeting 1
In the first tutorial meeting we will discuss and solve problems of chapters 1, 2 and 8.
Lecture 2
This lecture deals with the pricing of futures and forward and analyses the situations in which futures, especially stock index futures, can be used to hedge financial price risk. You should prepare chapters 3, 4 and 5 in the textbook.
Group meeting 2
During the second tutorial meeting we will discuss and solve problems of chapters 3, 4 and 5.
Lecture 3
The third lecture deals with options. We will combine options with other assets and discuss the different strategies available to an investor using options. We will also discuss the basic factors that affect option prices. You should prepare chapters 9 and 10 of the textbook.
Group meeting 3
During the third tutorial meeting we will discuss and solve problems of chapters 9 and 10.
Lecture 4
In the fourth lecture we will derive arbitrage conditions that insure correct pricing. Furthermore we will introduce the concept of risk neutral valuation and show how binomial trees are used to valuate options. Part of the lecture will be devoted to the Cox, Ross and Rubinstein approach which provides an alternative and easy way to understand the derivation of the Black and Scholes model. This lecture is also dedicated to the pricing of stock options using the Black and Scholes model, as well as the assumptions and deficiencies of this model. You should prepare chapters 11 and 12 of the textbook.
Group meeting 4
During the third tutorial meeting we will discuss and solve problems of chapters 11 and 12.
Lecture 5
We will continue our discussion on option pricing with currencies, stock indices and futures contracts as underlying assets. You should prepare chapters 13 and 14 of the textbook.
Group meeting 5
During the third tutorial meeting we will discuss and solve problems of chapters 13 and 14.
Lecture 6
In the sixth lecture, we will show how to valuate options numerically using binomial trees when the Black and Scholes model is not relevant. We will also deal with the use of option in hedging strategies and the creation of synthetic options. You should prepare hapters 15 and 16 in the textbook
Group meeting 6
During the third tutorial meeting we will discuss and solve problems of chapters 15 and 16. |
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| Written notes : | The required textbook that will be used throughout the course is :
- Hull, John, 2006, Fundamentals of Futures and Options Markets, latest edition, Prentice-Hall.
Recommended books are:
- Cox, John C., and Mark Rubinstein, 1985, Options Markets, Prentice-Hall.
- Kolb, Robert, 2003, Futures, Options and Swaps, 4th edition, Blackwell. |
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| Assessment : | This course will conclude with a three-hour written exam, consisting entirely of open questions. Students are allowed to use a non-programmable calculator as well as one page A4 with formulas. Distribution tables will be provided.
A minimum of 5 for the written exam is required to pass the course (If the written exam grade is below 5 -> this grade will be used as final total grade). If the written exam grade is above 5, the final grade will be determined by weighing the grades for the exam, the problem sets, and class participation. The weights are:
 Exam: 0.70
 Problem sets: 0.10
 Presentation and Class participation: 0.20 |
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| Contacts : | Aline Muller, Ph.D.
Ethias Professorship
Assistant Professor of Finance, HEC - Management School of the University of Liège (Belgium)
Assistant Professor of Finance, Nijmegen School of Management, Radboud University (The Netherlands)
Please note that my address and phone number have changed :
Rue Louvrex 14, Bldg. N1,
B-4000 Liège Belgium
tel : 0032 4 232 7435
fax: 0032 4 232 7376
email : aline.muller@ulg.ac.be
website : www.finance.hec.ulg.ac.be |
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