Course Description

The class FIN 524B Derivatives introduces students to different pricing concepts and models for assets  that derive their value from an ‘underlying’, often referred to as ``derivative.’’  The goal of the course is to introduce and discuss a variety of distinct derivatives, and modeling environments. Building on the    ‘Options and Futures’ course 524A, we will start with pricing of derivatives in binomial trees over

single and then multiple time periods. In this context, we will discuss European versus American

options, early exercise, dividends and exotic options such as Barrier and Asian options. Next, we will   transition to continuous time, where we introduce Brownian Motions, martingales, general stochastic   processes, and Ito Calculus. We will discuss and apply the Black Scholes formula for pricing options.   We then spend time on the price sensitivity of options, the `‘Greeks.’’ We then spend time on Currency and Future Options, and Interest rates.

Copyright of course material

The information contained in the provided course material and documents is confidential, privileged   and only for the information of the intended recipient and may not be used, published or redistributed without the prior written consent of the Olin faculty member teaching the course.

Course modality

The course is offered in-person except if otherwise specified by University guidelines. Students with a remote exception may attend via ZOOM.  I will post an announcement on Canvas if the modality changes.

Material

The lecture material is self-contained so that a book purchase is not necessary. The recommended textbook is ‘Options, Futures, and Other Derivatives’, 10th Edition, by John Hull, Pearson.

Canvas: All course material such as the syllabus, lecture notes, and solutions to the exercises in the lecture notes are available on the course site in Canvas at https://mycanvas.wustl.edu/.

All important announcements with regard to the course are made on canvas.

Examination:

There are two examinations during the course.

1) Midterm Exam

We take a midterm exam on November 21, at 6pm. The questions will have multiple choice format.  The midterm exam is voluntary. Its grade should be considered as a participation grade. The midterm  exam takes place online on canvas, opens at a given date and time and then closes again after time has elapsed. If you do not attend the midterm exam online during the given time period, or if you

have an unstable internet connection, you may miss it. There are no make-up midterm exams.

The midterm exam questions are later solved during the lecture. Solutions to the midterm exam will not be distributed on canvas after having solved the midterm exam in class. The midterm exam counts for   40% of the final grade.

2) Final Exam

The final exam is obligatory, and assembled online on canvas. It is the students’ responsibility to ensure a stable internet connection. The University has assigned the 12th of December, 8:30 AM - 11:30 AM  (online) as the date and time during which the final exam is written. Please check your schedule and

make sure that the exam date does not conflict with a religious holiday, etc. If you have a conflict, you must inform me by the end of the second week of the course. The exam time is non-negotiable. If you think you will miss the exam, please contact me via e-mail prior to the exam time and bring justifiable proof of absence. Otherwise, you may not get credit.

Grading

Your grade for the course will be determined by a quiz, and the final exam according to: Midterm Exam                      40%

Final Exam                            60%

Grades are non-negotiable. If you feel I have graded one of the course requirements incorrectly, please bring it to my attention immediately. Grade appeals (e.g., because you believe your points were not added up correctly) must be submitted within a week after the grades are released. In case of a grade appeal, the full exam is under re-review so that the grade can go both up and down.

Class Participation

You are obliged to attend all classes in person, unless you have a remote exception. Class recordings are not provided since this is an in-person lecture. If you do not come to class you might miss grade- relevant course content. In that case, it is your responsibility to gain access to the material.

You are asked to actively participate in class. Please, ask questions, or engage in the discussion when I am asking open questions.

Additional questions can be addressed to the email address provided above, or are answered during the office hour.  Please address longer questions in the office hour.

Important Policies on Exams

The exams are open-book and open-notes but the questions have to be answered in the given time

frame on canvas. Your solutions must show how you arrived at your results (path to solution) except  for multiple choice questions. Collaboration such as discussing exam exercises, sharing solutions and plagiarism are strictly prohibited and will be considered as a violation of academic integrity.

Laptops, tablets and mobile phones are not appreciated during the lecture since they distract all students, most of all you.

Olin’s Pillars of Excellence

Students taking this class will do all of the following:

1. Embody a values-based and data-driven ethos in their approach to all business situations. 2. Understand the global opportunities and challenges facing businesses.

3. Engage with business issues through the application of experiential knowledge, in addition to the rigorous technical skills acquired in the classroom.

4. Pursue world-changing initiatives with an entrepreneurial and innovative mindset and skillset.

Academic Integrity

Students are required to abide by the Olin Code of Conduct. Academic dishonesty of any form will not be tolerated. Please refer to the Olin Code of Conduct for responsibilities, guidelines, and procedures   regarding academic integrity. You may also consult with your program’s Dean if you have questions or concerns.

Disabilities

Reasonable accommodations will be made for students with verifiable disabilities. Students who

qualify for accommodations must register through Washington University’s Disability Resources

(DR) (https://students.wustl.edu/disability-resources/). In that case, please inform me by week two so that I can administer the homework and exam accordingly.

Tentative course schedule

The topics covered on each proposed date may change as the semester progresses.

COVID-19 Health and Safety Protocols:

While on campus, it is imperative that students follow all public health guidelines established to reduce the risk of COVID-19 transmission within our community. The full set of University protocols can be   found at https://covid19.wustl.edu/health-safety/. This includes:

• Completing a self-screening using the WashU COVID-19 Screening app every day before coming to campus or leaving your residence hall room. If you do not receive a green check and pass the

screening, you are not permitted to come to campus or leave your residence hall room. You must

contact the COVID Call Center (314-362-5056) or the Habif Health and Wellness Center (314 935-

6666) immediately. Note: In addition to the symptoms listed in the screening tool, everyone also should pay attention to symptoms that are new or different for you, including things like headache and

congestion, particularly in combination with diarrhea. These can also be signs of COVID-19. Call the COVID Call Center or Habif to report these symptoms.

• Complying with universal masking. All individuals on campus must wear disposable masks or cloth face coverings while occupying indoor public settings, including: multi-person offices, hallways,

stairwells, elevators, meeting rooms, classrooms and restrooms. Masks are encouraged but not required for outdoor activities, particularly at large events or in crowded settings.

• Maintaining physical distancing as needed. While distancing requirements have been removed for     vaccinated students, those who are not fully vaccinated are strongly encouraged, for their own health,  to maintain a distance of 6 ft from others in the classroom. If you are not able to be vaccinated or have conditions that may put you at increased risk of failed immunity and classroom activities would bring you in frequent proximity to other students, contact your instructor to discuss alternatives.