Options Spring 2007 by abstraks


									      Options: Fall 2009: Professor: An-Sing Chen: Office: 517: Phone: 34201
              Class Meeting Time: Monday: 1:15 p.m. to 4.00 p.m.

This is an MBA course about options. Options have moved to the center of modern
corporate finance, investments, and the management of financial institutions. They
have also had a profound impact on the management functions such as business
strategy, operations management, and marketing. Options are also useful for
hedging and risk management. Further they are ideal leverage instruments for
speculators. The major drawback of options is that they are very difficult to
understand and are highly mathematical. The following topics will be covered in
this course. Mechanics of options markets, properties of stock options, trading
strategies involving options, binomial trees, wiener processes and ito’s lemma, the
black-scholes-merton model, options on stock indices, currencies and futures, the
greek letters, volatility smiles, basic numerical procedures, estimating volatilities and
correlations, numerical procedures, martingales and measures, 2nd generation pricing
models, statistical option pricing.

Required Textbook: Options Futures and other Derivatives, 7th edition, John C. Hull.

Week1: introduction
Week2: chap 8,9 : mechanics of options markets; properties of stock options
Week3: chap10, 11: trading strategies involving options; binomial trees
Week4: chap 12, 13: weiner processes and ito’s lemma; the black-scholes-merton
Week5: paper1, paper2: discuss bs pde,
Week6: paper3, paper4: discuss merton pde
Week7: paper5, paper6
Week8: test1
Week9: chap 15, 16: options on stock indices and currencies; futures options
Week10: chap 17, 18: the greek letters; volatility smiles
Week11: chap 19, 26: basic numerical procedures; more on models and numerical
Week12: paper7, paper8: discuss pde for currency options
Week13: paper9, paper10: discuss pde for futures options
Week14: paper11, paper12: discuss pde for heston’s stochastic volatility opm
Week15: paper13, paper14, paper15
Week16: test2

Grading: 2 tests: homework assignments: class presentation and attendance. Tests
count for 70%, homework assignments count for 15%, and presentation and class
attendance count for 15% of the course grade.

Course website: http://ecourse.elearning.ccu.edu.tw/

You should check the course website at least 2 hours prior to each lecture to download
and print out any supplementary materials such as power point slides that will be used
during the lecture. I will be updating the course website on a regular basis
throughout the semester so you should check the website often.

Group Presentations: The class will be divided into 15 groups. Each group will be
responsible for presenting one paper during the semester. The paper for each group
will be assigned during the 2nd week. Please check the course website for group
paper presentation assignments. Please give the names of the group members to my
TA once the groups are assigned.

Homework assignments: I will be giving our regular homework assignments
throughout the course. They should be submitted to the class TA prior to the next
lecture. In addition to the paper presentations by each group, I will also be assigning
problem sets for group presentation throughout the semester. So each group should
check the course website each week to see if they have been assigned a problem that
needs to be presented in class the next week and prepare the ppt slides accordingly.

TA for this course: The TA for this course is 洪一峰。
TA’s telephone number: 0910776505.
Please consult him concerning questions with respect to routine course administration
such as grading policy, late homework assigments, etc.

Paper list:

Paper1: Black F., M. Scholes, 1973, The Pricing of Options and Corporate Liabilities,
Journal of Political Economy 81, 637-659.
Paper2: Engle, R.F., 1993, Statistical Models for Financial Volatility, Financial
Analysts Journal, (Jan/Feb): 72-78.

Paper3: Merton, R.C., 1973, Theory of Rational Option Pricing, Bell Journal of
Economics & Management Science 4, 141-183.
Paper4: Chen, A. S., 1997, Forecasting the S&P 500 Index Volatility, International
Review of Economics and Finance, Vol. 6, No. 4, 391-404.

Paper5: Poon S-H. and C.W.J. Granger, 2005, Practical issues in forecasting
volatility, Financial Analysts Journal 61, 45-56.
Paper6: Chen, A. S., 1997, Volatility of Exchange Rate Futures and High-Low Price
Spreads, Journal of Economics and Finance, Vol. 21, No. 1, 33-42.

Paper7: Garman, Mark B. and Steven W. Kohlhagen, 1983, Foreign currency option
values, Journal of International Money and Finance, 2, 231-237.
Paper8: Chen, A. S., 1998, An Alternative Model for American-Style Currency
Options: A Numerical Integration Approach, International Journal of Finance, Vol. 10,
No. 3, 1179-1189.

Paper9: Black, F., 1976, The pricing of Commodity Contracts, Journal of Financial
Economics 3, 167-79.
Paper10: Chen, A. S., and M. T. Leung, 2003, Option straddle trading: Financial
performance and economic significance of direct profit forecast and conventional
strategies, Applied Economic Letters, Vol. 10, 493-498.

Paper11: Heston, S. and S. Nandi, 2000, A Closed-Form GARCH Option Valuation
Model, Review of Financial Studies, v13, no 3, 585–625.
Paper12: Chen, A.S., and M.T. Leung, 2005, Modeling time series information into
option prices: An empirical evaluation of statistical projection and GARCH option
pricing model, Journal of Banking & Finance 29, 2947–2969.

Paper13: Longstaff, F.A., and E.S. Schwartz, 2001, Valuing American Options by
Simulation: A Simple Least-Squares Approach, Review of Financial Studies, 113-47.
Paper14: Chen, A. S., and P. F. Shen, 2003, Computational complexity analysis of
least squares monte carlo (LSM) for pricing American derivatives, Applied Economic
Letters, Vol. 10, 223-229.
Paper15: Chen, A. S., and Y. C. Chu, 2000, Dynamic Index Option Trading Strategies:
Direct Forecasting Versus Options Pricing, Advances in Pacific Basin Business,
Economics and Finance, Vol. 4, 121-136.


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