Category: Announcements

Here’s the agenda for the next couple of Finance 4366 class meetings:

Tomorrow: Review solutions for midterm 2, and complete the credit risk class problem. 

Next Tuesday, dive into concepts that appear in the assigned reading that is due tomorrow; particularly the Geometric Brownian Motion, Ito’s Lemma, and Risk Neutral Valuation, Risk-Neutral Valuation in Continuous Time Synopsis, and Greek Letters teaching notes.

I have updated the course website and Canvas.  Problem set 10 is extra credit – if you complete it, you can use your grade to replace your lowest scoring problem set.  This assignment is in lieu of coding your own spreadsheet for solving the credit risk class problem.  Actually, since problem set 10 is essentially a reparameterization of the class problem, any work you’ve already done on spreadsheet modeling can be trivially repurposed for problem set 10.

I have uploaded the Midterm 1 Exam grades and current (March 16) attendance/participation, quiz, problem set, and Finance 4366 course grades to Canvas.

As stated in the course syllabus, final numeric course grades will be determined according to the following equation:

Final Course Numeric Grade =.10(Attendance and Participation) +.10(Quizzes) +.20(Problem Sets) + Max{.20(Midterm Exam 1) +.20(Midterm Exam 2) +.20(Final Exam),.20(Midterm Exam 1) +.40(Final Exam),.20(Midterm Exam 2) +.40(Final Exam)}

As I noted in my January 29th blog posting entitled “Finance 4366 Grades on Canvas”, as the spring semester progresses and I continue to collect grades in the attendance, quiz, problem set, and exam categories, then the course grade listed on Canvas will dynamically incorporate that information for each student; now that I have posted the Midterm 1 Exam grades, the equation that I am now using (until Midterm 2) is:

Course Numeric Grade after Midterm 1 = (.10(Attendance and Participation) +.10(Quizzes) +.20(Problem Sets) +.20(Midterm 1))/.6

There are n = 18 students enrolled in Finance 4366. Here are the current grade statistics, broken down by grade category:

Although actual letter grades won’t be assigned until after the final exam, hypothetically, you can determine where your course letter grade currently stands by comparing it with the course letter grade schedule that also appears in the course syllabus:

If you are disappointed by your performance to date in Finance 4366, remember that the final exam grade automatically double counts in place of a lower midterm exam grade. If both midterm exam grades are lower than the final exam grade, the final exam grade replaces the lower of the two midterm exam grades.

If any of you would like to chat with me about your grades in Finance 4366, then by all means, stop by my office (Foster 320.39) 3:30-4:30 pm TR or set up a Zoom appointment with me.

In an earlier blog posting titled “This week, Finance 4366 will proceed asynchronously!”, I referenced the status for Thursday’s video lecture as “TBA”; i.e., to be announced. So, here’s the announcement I promised:

Thursday, March 14 (due Friday, March 15 by 5 pm): Watch and turn in a synopsis of the video lecture titled “CRR to BSM, American Options Part 1”. This lecture completes coverage of the Binomial Trees (particularly, how the discrete-time Cox-Ross-Rubinstein (CRR) binomial option pricing model converges to the continuous-time Black-Scholes-Merton (BSM) option pricing model. It also provides the first installment of our coverage of American options, based on the lecture note titled Early Exercise of American Call and Put Options on Non-Dividend Paying Stocks.

A couple of students from Finance 4366 have reached out inquiring about the contents of a synopsis. A synopsis should encapsulate a condensed overview of the lecture. Within your overview, enumerate the subjects discussed and outline the significant principles connected to these subjects, which you learned from the video lecture.

I have decided to extend the deadline for this particular assignment from 5 pm to 11:59 pm today. Additionally, you have the option to resubmit your synopsis once if you choose to do so.

Dear Finance 4366 Students,

Because of health-related issues in my family, our Finance 4366 class will not meet in person this week and will proceed asynchronously on March 12th and 14th.

I’ve uploaded a lecture for March 12^th titled “Binomial Trees (2nd lecture)”. I will upload another lecture note by Wednesday at the latest for March 14th, completing the presentation of the Binomial tree and introducing American options.   Since Finance 4366 will not meet in person this week, I expect everyone to watch and report on both lectures online. To earn attendance and participation credits, watch both lectures and submit synopses for each in PDF format via Canvas. The synopsis for the March 12th lecture is due at 5 pm on March 13th, and the synopsis for the March 14th lecture is due at 5 pm on March 15th.  I have created two separate assignments for your lecture synopses that can be found on the course Assignments page on Canvas.

I will also be available for virtual (Zoom) office hours on Tuesday, March 12, and Thursday, March 14, from 3:30-4:30 p.m.  If you like, you can also make an appointment on MW by typing “appointment.garven.com” in the address field of your device’s web browser.

Here are the links for the March 12 and March 14 lectures:

March 12 (Binomial Trees (2^nd lecture)): https://mediaspace.baylor.edu/media/Binomial+Trees+%282nd+lecture%29/1_15th0kft

March 14: TBA

Did you know Baylor University is hosting the 2024 Collegiate Day of Prayer? All Baylor students are encouraged to come together tomorrow (February 29) at 7 p.m. for the worship and prayer service in Waco Hall. The Hankamer School of Business will also have Foster Room 143/144 reserved tomorrow from 8 a.m.-5 p.m., with stations for prayer guidance for students, faculty, and staff.

For more information, visit baylor.edu/dayofprayer.

A Finance 4366 student asked me earlier today for midterm 1 exam study tips.  I recommend working the Sample Midterm 1 Exam, reviewing problem set 3–5 solutions, all of which will be available at http://derivatives.garven.com/category/problem-set-solutions/ by Thursday, February 15 for our midterm 1 review session.  It also wouldn’t hurt to review the assigned readings and lecture notes on which the exam is based:

Assigned Readings:

January 30	1. Hull, Chapters 1 (“(Introduction”), 2 (“Mechanics of Futures Markets”), 10 (“Mechanics of Options Markets”) 2. Futures and Options Markets (Optional), by Gregory J. Millman
February 1	1. Hull, Chapter 5 (“Determination of Forward and Futures Prices”) 2. A Simple Model of a Financial Market, by James R. Garven
February 8	1. Hull, Chapter 11 (“Properties of Stock Options”) 2. Properties of Stock Options Chapter synopsis, by James R. Garven
February 13	Hull, Chapter 12 (“Trading Strategies Involving Options”)

Lecture Notes:

• Introduction to Options, Futures, and Other Derivatives (January 30)
• Replicating Portfolio approaches to Pricing Forwards and Futures, and Pricing Options (February 1-6)
• Properties of Stock Options (February 8)
• Trading Strategies Involving Options (February 13)