Financial Markets and Modeling,
Futures, Options, and other Derivatives
Lecture Slides for Spring 2013
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. Although I hand out hard-copy
versions of these slides (of much lower quality), as an effort to conserve
paper and printing resources, I urge you to try to use these slides rather than
the ones given out in class - again, they are same and these are better
quality.
These
lecture slides are protected by copyright laws, with restrictions described on
the title slide.
Throughout
the semester these slides will be posted as they become available.
Introduction to Futures – Natural Gas Futures Lecture 2
Compounding, Discounting, Risk and Volatility Lecture 3
Hedging with Futures Lecture 4
Arbitrage and Spreads Lecture 5
The Great Rotation (2013) [Mandatory reading assignment
about the Great Rotation discussed in class]
Interest Rate Futures Lecture 6
[Mandatory]
Justifying Forward Rates (supplement to Lecture 7)
Interest Rate Theory including Zero and Forward Rates Lecture
7
[Mandatory]
Bill Gross: Sell Currencies of serial QE offenders - FT
Feb 28, 2013
[Mandatory]
Brent futures flip rolls up big profits FT Feb 27,
2013 - includes backwardation image at end
Dynamic Modeling Part 1 Lecture 8
Dynamic Modeling Part 2 Lecture 8b (also represented
below as a video lecture)
[Mandatory
video] Dynamic Modeling Part 2
Dynamic Modeling Part 3 Lecture 8c
The Black-Scholes Options Pricing Model Lecture 9
Advanced Volatility Lecture 10
Current and interesting past real trades Lecture 12
[Video]
Final exam review (all students
should review, even those working on projects, because it has information about
the take-home final and due dates for the projects).
Final exam review (PowerePoint
version without sound)
The Final Take-Home Exam [due May 9, 5:00 PM, all
students]
Homework and
Other Assignments
Homework for
this semester, 2013
Homework 1 - Calculating Log
Continuous Growth Rates from data for SPY
[Note: The inclusive range of
dates for the data download for this assignment is 2/2/2012 to 2/4/2013. This
is noted here rather than in the assignment so I don’t have to keep changing
the homework assignment merely to assign new dates. You will see what I mean
when you read the assignment].
Instructions on how to download
historical price data (video) [Review this before
trying to download data].
Detailed instructions on how to do the
Financial Prices SD Calculation for SPY (choose this or the quick and
dirty)
Quick and
dirty instructions for Financial Prices SD Calculations for SPY (optional)
Historical
Volatility Step 1 Excel workbook zipped (required)
The
desired result from this homework (video) (do not review until completing
the homework)
Homework 2 - Calculating MVHR
for Jet Fuel and Correlation for TLT and JNK
NOTE:
We are using the
same HW with the same data (already loaded) as in 2012 because the application
and principle learned is the same. We will update the TLT/JNK data after the
exam.
Homework instructions (video file)
Minimum
Variance Hedge Ratio Excel workbook zipped
Homework 3 - Calculating Zero
and Forward Rates and Duration (must be completed by the week after Spring Break)
Calculating
Zero Rates, Forward Rates and Duration (assignment in text - read first)
Zero Forward
Duration Rates ZFD Excel workbook zipped
Homeworks
4 and 5 - Calculating Daily Volatility and Historical Alphas (HW4) and Strike
Price Probabilities
Video instructions for Homeworks 4 and 5 (low definition 13 MB)
Video instructions for Homeworks 4 and 5 (same as above but high definition 26
MB)
Video slide
set for Homeworks 4 and 5 (for optional use
without the video sound)
These files below are
explained in the video instructions:
NormBase (Excel workbook in zip file for background use
and information - not directly used in homework)
SPPC (Strike
Price Probability Calculator)
Homework 6 - Student Options
Price Calculator
Instructions
for constructing the student Options Pricing Calculator
Student
Option Pricer (zipped Excel workbook to be used
to for the Options Pricing Calculator)
Homework 7 - Iron Condor Spreads
Iron Condor
Spread (zipped Excel workbook designed for sensitivity analysis)
Iron Condor Sensitivity Spread
Instruction Video
Iron Condor Video
Slide set (the slide set in pdf format without sound)
Additional Reading not elsewhere
found
Jump
Diffusion Model for Options Pricing (by S.G. Kow,
adds Poisson distribution to Ito model)
What
Happened to the Quants in August 2007 (by Khandani
and Lo, mostly about the stat arb meltdown)
Credit Default
Swaps (by Richard Skora, a good article that
explains how credit default swaps work, something we don't cover in this class)
China Stuff (all optional)
Unrestricted Warfare (if interested,
speed-read chapter 5 and after for their views about finance).
The Revenge of Wen
Jiabao (a detailed Foreign Policy story
about the long roots of the purge).
A Chilling End in Chongqing (Financial
Times story about the Heywood murder and possible links to the Bo
purge).
China Reins in Bo Xilai
Chatter Online (Wall Street Journal Story about censorship after the purge)
Mandiant
Chinese Espionage Report February 2013 (Extensive evidence of PLA cyberespionage)