FINAN519-19B (HAM)

Derivatives

15 Points

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Division of Management
School of Accounting, Finance and Economics

Staff

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Convenor(s)

Greg Hou

Greg Hou
9402
MSB.2.37
2 pm - 4 pm, Tuesday
greg.hou@waikato.ac.nz

Lecturer(s)

Administrator(s)

: denise.martin@waikato.ac.nz

Placement Coordinator(s)

Tutor(s)

Student Representative(s)

Lab Technician(s)

Librarian(s)

: clive.wilkinson@waikato.ac.nz

You can contact staff by:

  • Calling +64 7 838 4466 select option 1, then enter the extension.
  • Extensions starting with 4, 5, 9 or 3 can also be direct dialled:
    • For extensions starting with 4: dial +64 7 838 extension.
    • For extensions starting with 5: dial +64 7 858 extension.
    • For extensions starting with 9: dial +64 7 837 extension.
    • For extensions starting with 3: dial +64 7 2620 + the last 3 digits of the extension e.g. 3123 = +64 7 262 0123.
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Paper Description

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This paper aims to enhance students' ability to understand and analyse derivatives beyond simple futures and options. It also introduces basic research on derivatives to students. Major topics to be covered include binomial trees, Wiener processes, Ito's lemma, the Black-Scholes model, Greek letters, delta and gamma hedging, advanced issues of futures markets, value at risk, GARCH conditional volatility models, and swaps. Students are led to read journal articles, do in-class presentations, participate in research debate, conduct empirical analyses and write research reports.

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Paper Structure

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The main activities of this paper include:

Lectures

Journal articles reading

In-class research article presentation

Journal articles summary

Individual project report

Quiz

Final exam

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Learning Outcomes

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Students who successfully complete the course should be able to:

  • Articulate the fundamental properties of an option and mechanisms of option market. Students are able to evaluate option value by using binomial trees. [LO1]
    Linked to the following assessments:
  • Understand the applications of stochastic processes on asset pricing. Students are able to understand the complex pricing mechanism of options such as Black-Scholes model. [LO2]
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  • Understand trading strategies for risk management using Greek letters of BS model such as delta and gamma hedging. [LO3]
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  • Understand the techniques of risk evaluation such as Value at Risk (VaR). Students are able to understand conditional volatility model such as GARCH. [LO4]
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  • Illustrate pricing mechanism and properties of swaps and credit default swap (CDS). Students are able to understand the advanced issues of futures markets. [LO5]
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  • Summarise and evaluate the research papers on the topics relating to BS model, delta and gamma hedging, VaR, GARCH model and CDS. [LO6]
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  • Apply the concepts of risk management using options to transaction data and evaluate the performance. [LO7]
    Linked to the following assessments:
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Assessment

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There are four pieces of internal assessment for this paper: In-class journal article presentation, research paper summary, quiz and individual analysis report.

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Assessment Components

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The internal assessment/exam ratio (as stated in the University Calendar) is 50:50. There is no final exam. The final exam makes up 50% of the overall mark.

The internal assessment/exam ratio (as stated in the University Calendar) is 50:50 or 0:0, whichever is more favourable for the student. The final exam makes up either 50% or 0% of the overall mark.

Component DescriptionDue Date TimePercentage of overall markSubmission MethodCompulsory
1. Quiz
9 Aug 2019
5:00 PM
10
  • Online: Submit through Moodle
2. Individual Project Report
27 Sep 2019
5:00 PM
20
  • Online: Submit through Moodle
3. In-class journal article presentation
3 Oct 2019
11:00 AM
10
  • Presentation: In Class
4. Research Paper Summary
13 Oct 2019
5:00 PM
10
  • Online: Submit through Moodle
5. Exam
50
✔
Assessment Total:     100    
Failing to complete a compulsory assessment component of a paper will result in an IC grade
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Required and Recommended Readings

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Required Readings

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Hull, J.C. (2012). Options, Futures, And Other Derivatives. 8th Edition. Pearson Education Limited.
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Recommended Readings

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For additional readings of this paper, refer to Waikato Reading List (https://rl.talis.com/3/waikato/lists/3D9E1B61-3399-2C23-2C82-4EC0D7A17C71.html?lang=en-GB): note that this list contains a pool of research papers for lectures and internal assessment.

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Other Resources

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Other teaching materials will be provided online via Moodle where necessary.

Please contact the Paper Convenor for further details.

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Online Support

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All the resources about this paper will be available on Moodle. Research papers are available via Reading List. The online resources may be updated where necessary.
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Workload

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There are 150 learning hours for this paper. They will be spent on the following activities:

Attend lectures and workshops

Read teaching materials and research articles

Prepare for and do the research article presentations

Write research summary and project report

Prepare for and sit the quiz

Prepare for and sit the final exam

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Linkages to Other Papers

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Note any linkages to other papers where the linkage is of importance.
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Prerequisite(s)

Corequisite(s)

Equivalent(s)

Restriction(s)

Restricted papers: FINA519

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