Author: drgarven

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Problem Set 8 helpful hints

I recommend using the “Pricing of American Options on Non-Dividend Paying Stocks spreadsheet I uploaded earlier today to help you solve Problem Set 8.  It would also be worthwhile to spend a few minutes reviewing the Early Exercise of American Call and Put Options on Non-Dividend Paying Stocks lecture note before working on this problem set.

Upon opening the spreadsheet, you will likely see the following security alert due to the spreadsheet’s embedded Visual Basic code. If you trust the source of this file (hopefully you do! :-)), you will enable macros to proceed any further:

Since no dividends are considered in any of these spreadsheets, you’ll obtain the not-surprising result that the value of the American call is the same as that of the European call in all three cases.  However, in-the-money American puts may have higher values than otherwise identical European puts.

Feel free to use this spreadsheet when you are working on problem set 8, but DON’T turn the spreadsheet in as part of your PDF; instead, explain the reasons for the results you obtain in plain English.  You can solve both Problems 1 and 2 using the 2-period put worksheet that is included in this spreadsheet.  The trial-and-error aspect of Problem 2 can be accomplished by using Solver.

Lastly, I would like to note that it is also feasible to solve Problem 2 analytically – no calculus – just basic algebra. Extra credit will be awarded to anyone who successfully does so.

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ICYMI: 5 Things You Need to Know About the Total Solar Eclipse and Diadeloso

5 Things You Need to Know About the Total Solar Eclipse and Diadeloso

The Total Solar Eclipse and Diadeloso on the Baylor University Waco campus are less than one week away on Monday, April 8. Here are five important things to know about the events.

1. Eclipse Over Texas is at McLane Stadium, Diadeloso is on campus.

The Eclipse Over Texas: Live From Waco events at McLane Stadium’s Touchdown Alley require a ticket to enter. General Admission tickets may be purchased online at eclipseovertexas2024.com. There are numerous educational and experiential opportunities, presentations and activities for the entire family to learn about the eclipse, including from Baylor’s own astrophysics faculty. A clear bag policy is in effect and participants will pass through magnetometers. Once you pass through security, you may not leave and then re-enter the event.

Diadeloso will be held on campus – Fountain Mall, Bear Park, Bill Daniel Student Center – with activities from 11 a.m. to 4 p.m. Diadeloso events for Baylor students, faculty and staff require a wrist band to participate. To help you safely view the eclipse, each wrist band will come with approved solar eclipse glasses.

  • Faculty and staff can pick up wrist bands with their Baylor ID from 11 a.m. to 2 p.m. April 3-5 in Bill Daniel Student Center.
  • On Monday, students can pick up wrist bands with their Baylor ID at two campus locations: 5th Street between the Bill Daniel Student Center and Marrs McLean Gym between 11 a.m. to 4 p.m.

A wrist band will be required for Dia’s traditional campuswide Noon Meal, which will be served in Penland Crossroads and East Village Dining Commons from 11 a.m. to 1 p.m. Wrist bands will also be available at these locations during the mealtime. Remember, you must show your Baylor ID to receive a wrist band. All other dining halls will be closed for lunch that day. The SUB food court will be open. Food trucks with specialty drinks, desserts and snacks for purchase will be available beginning at 11 a.m. in the parking lot behind Morrison Hall.

Diadeloso WILL include an Eclipse Watch with information and interesting facts about the total solar eclipse provided by Dr. Jared Fier from Baylor’s Department of Physics, from 1:15 p.m. to 1:45 p.m. on Fountain Mall, weather permitting.

Find the full schedule of Dia events and attractions at diadeloso.web.baylor.edu.

2. Weather may impact planned events.

City of Waco and Baylor officials are monitoring the weather forecast, which can evolve and change over the week. Plan ahead and be prepared for the weather to possibly impact these events. Eclipse Over Texas: Live from Waco will proceed rain or shine, unless the weather conditions become dangerous. Any updates will be posted at eclipseovertexas2024.com and communicated directly with ticketholders.

Diadeloso events also may be impacted by the weather. Please check diadeloso.web.baylor.edu and Student Life social media channels for updates. If weather turns severe, the University will communicate with campus via the Baylor Alertemergency notification system.

3. Traffic will be heavy in the area.

Waco is one of the largest cities in the solar eclipse path of totality, and that makes it a very popular location for thousands of visitors who want to see the event. Expect heavier than normal traffic and congestion in the Waco area from April 5-8 as events around the eclipse are planned in Waco through the weekend. Most roads in and around campus will be open but be prepared for traffic delays. We anticipate traffic around the Baylor campus on the day of the Eclipse will be similar to a football game day.

On April 8, we anticipate a significant number of visitors to the area who may not be familiar with University parking guidelines may park on campus.

Students without parking permits may park in designated student parking areas on campus on April 8.

Important note: The University is officially open on April 8. Staff are asked to coordinate their time away for the Eclipse Over Waco event or Diadeloso with their supervisors.

4. Special solar eclipse glasses are required for your safety.

IMPORTANT: You must use special solar eclipse glasses to safely view any portion of the eclipse. Traditional sunglasses or multiple pairs of sunglasses WILL NOT protect your eyes from damage.

NASA provides important information on how to protect your eyes during a Total Solar Eclipse:

  • View the Sun through eclipse glasses or a handheld solar viewer during the partial eclipse phases before and after totality.
  • You can view the eclipse directly without proper eye protection only when the Moon completely obscures the Sun’s bright face – during the brief and spectacular period known as totality.
  • As soon as you see even a little bit of the bright Sun reappear after totality, immediately put your eclipse glasses back on or use a handheld solar viewer to look at the Sun.

If you are watching an entire eclipse, you may be in direct sunlight for hours. Remember to wear sunscreen, a hat and protective clothing to prevent skin damage.

You also can watch the Total Solar Eclipse via Discovery and Science Channel livestreaming:

5. Eclipse academic and arts events are planned throughout the weekend.

There are many events across Waco and on campus to enjoy in the days preceding the eclipse and on the day of the eclipse. The city of Waco will celebrate with a weekend filled with concerts and activities. For a complete schedule of city events, visit the City of Waco website.

Baylor University also will offer several campus academic lectures, museum events and performances related to the Total Solar Eclipse, including a concert premiering music from new musical “American Eclipse,” a lecture with an Apollo 17 astronaut and panel discussion on the future of lunar exploration, and events at the Martin Museum of Art and Mayborn Museum. For a complete schedule of Eclipse events, visit the Baylor News website.

For additional questions, please check the Diadeloso and the Solar Eclipse FAQ.

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Extra Credit Opportunity: Barnabas Financial Forum: God and Money

I’m offering an optional extra credit opportunity that involves attending and reporting on the Barnabas Financial Forum: God and Money. It will be held on Tuesday, April 16, from 3:30-4:45pm in Foster 250. The speaker for the forum will be John Cortines, author of God and Money: How We Discovered True Riches at Harvard Business School.

If you take advantage of this opportunity, I will use the grade you earn on your report to replace your lowest quiz grade in Finance 4366. For this assignment, prepare a 2-3 page executive summary offering a thoughtful synopsis of what you learn from participating in the Barnabas Financial Forum. The report must be submitted here in PDF format via the Assignments section of Canvas no later than 5 p.m. on Friday, April 19.

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Extra Credit Opportunity: “The Campus Conformity Gauntlet”


I’m offering an optional extra credit activity for students enrolled in Finance 4366. This opportunity involves attending and reporting on a presentation titled “The Campus Conformity Gauntlet” by Greg Lukianoff, the President and CEO of the Foundation for Individual Rights and Expression (FIRE).  Mr. Lukianoff’s presentation is scheduled for Tuesday, April 23, beginning at 5:15 pm in Foster 240.

The presentation will discuss themes from Lukianoff’s recent book with Rikki Schlott, titled “The Canceling of the American Mind: Cancel Culture Undermines Trust and Threatens Us All-But There Is a Solution” (Simon & Schuster, 2023). It will examine how the suppression of free speech and the erosion of academic freedom, compounded by the pressure to conform in the realm of higher education, pose a significant threat not just to the academic community but to the very fabric of our democratic society.

Greg Lukianoff is not only the head of FIRE, but also a recognized attorney and author, with several New York Times bestsellers to his name. His notable works include “Unlearning Liberty: Campus Censorship and the End of American Debate,” “Freedom From Speech,” and along with NYU Professor Jonathan Haidt, “The Coddling of the American Mind: How Good Intentions and Bad Ideas Are Setting Up a Generation for Failure.” Lukianoff has also served as an executive producer on documentaries such as “Can We Take a Joke?” (2015), which examines the clash between humor, censorship, and the culture of outrage, and “Mighty Ira: A Civil Liberties Story” (2020), a documentary focusing on Ira Glasser, a former ACLU Executive Director.

If you take advantage of this opportunity, I will use the grade you earn on your report to replace your lowest quiz grade in Finance 4366. For this assignment, prepare a 2-3 page executive summary offering a thoughtful critique of Mr. Lukianoff’s presentation. To receive credit, the report must be submitted through Canvas in PDF format by 5 p.m. on Friday, April 26.

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American Options and Wiener Processes Asynchronous Lecture

Finance 4366 will not meet in person tomorrow, Thursday, March 21, due to ongoing health-related issues in my family.  Therefore, tomorrow’s “American Options and Wiener Processes” lecture will be delivered asynchronously. As in past asynchronous lectures, class participation credit will be awarded to students who write and upload a lecture synopsis to Canvas, the deadline for which is Friday, March 22 by 5 pm.

In my March 19th lecture, we learned that the early exercise of an American call option may be optimal when the underlying asset pays dividends.  In this lecture, we finish our coverage of discrete-time financial modeling in which the passage of time is measured over distinct and separate intervals (ranging from seconds to days, months, or even years), and consider financial modeling in the more realistic continuous-time framework in which the passage of time occurs over infinitesimally small time intervals.  Hull’s “Wiener Processes and Ito’s Lemma” textbook chapter (the teaching note for which is available at http://fin4366.garven.com/spring2024/lecture10.pdf) is named after the two math/stat-based methods required to understand continuous-time finance, particularly the groundbreaking (and Nobel prize-winning) Black-Scholes-Merton model, which revolutionized the pricing of options and derivatives.

Tomorrow, I plan to be available for office hours via Zoom from 3:30-5, if any of my students would like to come by.

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American Options, Part 2 notation

The lecture not upon which yesterday’s lecture, “American Options, Part 2,” is based (Effects of Dividends on the Pricing of European and American Options) , uses some notation that may seem unfamiliar.  Specifically, I am referring to the notation for terminal node call option payoffs that use the following syntax: C(T) = (S(T)-K)+. This is an abbreviation for C(T) = Max(0, S(T)-K). Furthermore, this PDF uses discrete rather than continuous compounding.