Financial
Markets and Modeling, Futures, Options, and other Derivatives
Lecture
Slides for Fall 2008
These linkages below are for the PowerPoint slides used in lectures for this class. They are provided as a courtesy to students enrolled in the class in case you want color version of the slides handed out in class.
These lecture slides are protected by copyright laws, with restrictions described on the title slide.
Please remember that when the lecture slides are handed out in class, they are often accompanied by text files and assignments that are not posted here with these slides. You should rely upon them and not only these slides to study for your exams.
Throughout the semester these slides will be posted as they become available. Further, I cannot guarantee that I will always post a copy of every lecture set here. Additionally, I may remove these slides at any time.
Lecture 1 Introduction to Futures
Lecture 2 Compounding Discounting and Introduction to Risk
Lecture 4 Interest Rates (revised on 9/18 to correct a mistake in a formula)
Forward Rate Example (a document meant to clarify by example the use of a forward rate in contracts)
Lecture 5 Arbitrage (revised on 9/25 to include the material on backwardation)
Lecture 6 Interest Rate Futures
Lecture 7 Exchange Rate Futures and FOREX
Lecture 8 Put and Call Options (revised and expanded on 10/14)
Lecture 9 Options on Futures and the Aruba Options Model
Lecture 10 Advanced Volatility
Lecture 13 Dynamic Modeling (revised and expanded on 11/13)
Lecture 14 The Black Scholes Options Pricing Model
Lecture 15 Collateralized Mortgage Obligations
Lecture 16 Credit Default Swaps (revised and expanded on 12/9)
If you did not take Economics 104 or the equivalent elsewhere, here is some remedial background material and information that might be helpful to you.
A good cryptic background review of these markets is provided in an inexpensive little book that was used in that class. You might consider buying it and reading it or at least keeping it as a reference: Virginia B. Morris and Kenneth M. Morris, Standard &Poor’s Guide to Money and Investing, Lightbulb Press, ISBN 0976474980.
In general, the full set of lecture slides for Econ 104 are available and identified by topic. Review any topic that you deem useful.
Stocks, Limit Orders, and NASDAQ Level II Pricing: To take this class you should be familiar with limit orders and NASDAQ Level II pricing. You should review (especially pages 13 and 14):
Lecture 2 Stocks and the Exchanges.
Bond, Note and Bill Pricing: Prior to beginning Module 2 Lecture 4 on interest rate theory, you should consider reading The Market for U.S. Treasury Securities and Bond and Note Valuation and Related Interest Rate Formulas. You should also review
Lecture 8 Yield-Bearing Financial Assets (first lecture)
Lecture 9 Yield-Bearing Financial Assets (second lecture)
Options: Prior to beginning Module 4 on options, you should consider reading Put and Call Options. You should also review