See link below:

# Category Archives: Announcements

# Finance 4366 extra credit opportunity

I have decided to offer the following extra credit opportunity for Finance 4366. You can earn extra credit by attending and reporting on Dr. P. J. Hill’s upcoming lecture entitled “Saving the Environment Through Prices and Property Rights”:

If you decide to take advantage of this opportunity, I will use the grade you earn to replace your lowest quiz grade in Finance 4366 (assuming that your grade on the extra credit is higher than your lowest quiz grade). The report should be in the form of a 1-2 page executive summary in which you provide a critical analysis of Dr. Hill’s lecture. In order to receive credit, the report must be submitted via email to options@garven.com in either Word or PDF format by no later than Monday, March 26 at 5 p.m.

# The solutions for problem set 7…

… are available at http://fin4366.garven.com/spring2018/ps7solutions.pdf.

# Wiener Processes and Ito’s Lemma Class Problem Set Solutions

Linked below are the solutions for the problem set that we worked on during class today!

Wiener Processes and Ito’s Lemma Class Problem Set Solutions.pdf

# Plan for next Tuesday’s meeting of Finance 4366

Perhaps a “trigger” warning is in order concerning next Tuesday’s meeting of Finance 4366. Since we’ll be covering the topic of Ito’s Lemma, it will be a bit on the “mathy” side. We will introduce Ito’s Lemma and use it to accomplish (among other things) the following tasks: 1) derive the parameters of the probability distribution for continuously compounded rates of return, and 2) determine the stochastic process for forward contracts. Our class meeting tomorrow will begin with a quiz based upon the assigned readings, which include Hull’s textbook chapter entitled “Wiener Processes and Ito’s Lemma” and my teaching notes entitled “Applying Ito’s Lemma to determine the parameters of the probability distribution for the continuously compounded rate of return” and “Geometric Brownian Motion Simulations“.

# Problem set 7 due on Tuesday, March 20

Problem set 7 is due on Tuesday, March 20; it is the second of two problem sets assigned for the Binomial Trees topic which we completed during today’s meeting of Finance 4366.

Problem 4 on this problem set requires applying the Cox-Ross-Rubinstein framework to determine the current market value of a six-month European call option, assuming that the number of time-steps (*n*) is equal to 15. For what it’s worth, the Cox-Ross-Rubinstein framework is succinctly summarized in my teaching note entitled “Convergence of the Cox-Ross-Rubinstein (CRR) Binomial Option and Black-Scholes-Merton (BSM) Option Pricing Formulas”.

# Discrete time to continuous time…

As we segue from discrete-time to continuous time pricing models in Finance 4366, you will surely find this topic to be quite challenging. But it is essential, since a basic understanding of the continuous time framework is, as Hull puts it, “central to the pricing of derivatives”. As you read the readings assigned for Tuesday, March 20 (consisting of Hull’s textbook chapter entitled “Wiener Processes and Ito’s Lemma” and my teaching notes entitled “Applying Ito’s Lemma to determine the parameters of the probability distribution for the continuously compounded rate of return” and “Geometric Brownian Motion Simulations“), keep the following exhortation by Hull in mind (this appears as the third paragraph on the first page of the textbook chapter assigned for next Tuesday):

“Many people feel that continuous-time stochastic processes are so complicated that they should be left entirely to ‘‘rocket scientists.’’ This is not so. The biggest hurdle to understanding these processes is the notation. Here we present a step-by-step approach aimed at getting the reader over this hurdle. We also explain an important result known as Ito’s lemma that is central to the pricing of derivatives.”

# Fall 2018 Course Announcement – Finance 4335: Business Risk Management

# Solutions for Problem Set 6…

… are located at http://fin4366.garven.com/spring2018/ps6solutions.pdf.

# Tomorrow’s meeting of Finance 4366

Since we completed our discussion of pricing European options using the binomial model just prior to spring break, tomorrow we will turn our attention to pricing American options. I plan to cover the reading entitled “Early Exercise of American Call and Put Options on Non-Dividend Paying Stocks”, and if time permits we’ll also move on to pricing options on dividend-paying stocks. Since I am late in bringing this change in schedule to your attention, I won’t have a quiz at the beginning of class. However, I highly recommend that y’all read this teaching note prior to coming to class tomorrow so that you can be somewhat familiar with the topic that we will be covering.