Finance III

Valuation and Derivatives

Course Outline for Summer 2001

Professor Gary R. Evans


Welcome to my course on financial derivatives.  This is the third course in a sequence of finance courses offered to students at the Duxx Graduate School of Business Leadership.  To get a better idea of the topics that we are going to cover in this course, look at the course calendar.  The topics to be covered include a review of compounding and discounting formulas and measures of risk and volatility, a discussion and analysis of put and call options, futures and forward contracts, futures options and eventually exotic derivatives.  We give special emphasis to understanding and using the value and pricing models, such as the Black-Scholes model used in valuing options.


Course Objectives


Mostly we want to explore the exotic and fascinating world of financial derivatives.  We will begin by simply understanding how they work and for what purpose they are used.  Then we probe a little more deeply, after discussing arbitrage and hedging possibilities, to develop rational explanations of their pricing and valuation.  We also want students to be aware of the opportunities for hedging and reducing risk offered by derivatives, and to think strategically about their use for these purposes. By the end of the class, students should feel comfortable about this complex financial environment.


We have a secondary but equally important objective of encouraging students communicate effectively and to work well in a team environment.  In this class we will divide the students into four teams for the purpose of doing cooperative projects on some of the homework assignments.


Reading Material and Homework Assignments


Much of our class information comes from some very detailed PowerPoint slides that I will use in my lectures.  We will also rely upon a lot of reading material that is available free from the internet.  When the time comes we will simply find it (I provide the URLs), download it, print it, and read it, all for free!  The internet has proven to be an increasingly reliable source of good material for courses like this. 


There is also a textbook assigned for this course that we use mostly for background reading and as a supplement to the lectures.  Because of the high cost of the book, we are providing one book per team, to be shared by team members.  That book is


John C. Hull, Introduction to Futures and Options Markets, 3rd ed., 1998.


We also have a large number of interactive assignments, most of which are based upon applications in Excel workbooks.  Many of these we will do together in class, and some you will do after class hours.


The detailed schedule for the course is shown on the course calendar.