UNIVERSITY OF WISCONSIN
Finance 330: DERIVATIVE SECURITIES
Monday and Wednesday, 11:00-12:15 and 1:00-2:30
Professor: Dr. Toni Whited Office: 5289 Grainger
E-mail: email@example.com Phone: (608)262-6508
Office Hours: MW 4:00-5:00 p.m. and by appointment Fax: (608)265-4195
This course covers the trading, structure, and pricing of options, forward contracts, futures
contracts, and swaps. By the end of this course you will have a good knowledge of how these
contracts work, how they are used, and how they are priced. Individuals who are skilled at
analyzing derivatives are in great demand in New York, London, and other financial centers
throughout the world. If successful, they can command very high salaries within a few years of
graduating. Also, more and more corporations are hedging or using derivatives theory to value
capital budgeting projects. As such, people with a good knowledge of derivatives are in high
Finance 300: Introduction to Finance
Math 213 or Math 222: Calculus
Gen Bus 304, Econ 410, or Stat 333: Statistics, which can be taken concurrently
Textbook and Course Materials
The textbook is Fundamentals of Futures and Options Markets, 5th Edition, by John C. Hull. I
suggest that you buy the book, but I have put a copy on reserve at the Business Library.
The web page for this course is http://instruction.bus.wisc.edu/twhited/fin330. All available
class materials are posted on the site. In particular, the site contains the lecture notes for the
course. You should print these out and bring them to class. You should check the website daily,
and it should be the first place you want to look for course related information, or if you have
questions regarding assignments.
You may purchase the optional Solutions Manual and Study Guide for this text at, for example,
Friday Discussion Sections and Teaching Assistant
Fei Li is the teaching assistant for this course. Her office hours are 3:00 to 4:00 p.m. on Tuesday
and Thursday in Room 1200G Grainger. She will hold discussion sections on February 10,
March 3, April 7, and April 28 in order to go over the problem sets. She will grade the exams,
the quiz, and the homework. I will grade the case study.
Students are obviously required to adhere to the standards of academic integrity set forth in the
University of Wisconsin–Madison student code of conduct, which can be found at
There will be three homework assignments, one case study, and two in-class exams:
Case Memo 15%
Case Quiz 5%
The final course grade will be determined by one of two methods, depending on which is more
favorable to the students. The first is a straight scale in which 95-100% corresponds to an A, 90-
94% corresponds to an AB, and so on. The second will be a curve in which approximately 30%
of the students receive an A or an AB, 45% receive a B or a BC, and 25% receive a C or below.
• All exams will be closed book and closed notes. You may only bring pens, pencils, erasers,
and a calculator.
• Exam content will be based on assigned problems and examples in the class handouts.
• I will provide you with a list of useful formulas. You may not make your own list. I
recommend that you memorize the formulas anyway. The exams are sufficiently challenging
that having to look up formulas will make it difficult for you to finish.
• NOTE: THE FIRST EXAM IS SCHEDULED ON THE MONDAY BEFORE SPRING
BREAK! DO NOT LEAVE EARLY!!! If you leave early, you will receive no points for
• If you are caught cheating on an exam, you will receive a score of zero for the exam.
• The exams must be taken at their scheduled times, unless you have a verifiable family or
medical emergency. These include operations, other hospitalizations, and deaths of close
relatives. They do not include garden-variety colds, minor injuries, or vacations. If you
attempt to falsify an excuse, you will receive a zero for the exam.
• All requests to have an exam re-graded must be submitted to me in writing within one week
after I hand back the exams. At that point I will re-grade the entire exam. No oral requests
will be taken, and please do not ask for a preliminary assessment of whether a re-grade will
be successful. I photocopy approximately 50% of all exams.
I will assign four problem sets. You may work on the assignments with a partner if you choose.
Larger groups are not permitted. If you work with another student, please submit only one copy
of your solutions, with both students’ names and lecture numbers appearing at the top.
Homework should not be done in consultation with students who are not members of your group.
Problem sets are due by 5:00 p.m. on the due date. If you do not hand them in during class, you
should slip them under my office door or put them in my mailbox on the fifth floor. No late
problem sets will be accepted, but I will drop the lowest of the four scores. This policy gives you
substantial flexibility in case you have a bad week.
Problem sets will be graded on a √, √+, √- system, in which a √+ is worth 3 points, a √ is worth 2
points, and a √- is worth one point. A √+ indicates that all of the problems were attempted and
that most or all were completed correctly. A √ indicates that all of the problems were attempted
and only approximately half were answered correctly, or that most of the problems were
attempted and that all of these were answered correctly. A √- will be earned if the criteria for a √
are not met. The final composite homework grade will be scaled proportionally so that 3 √+’s
equal 100% and failure to turn in any problem sets at all equals 0%.
For the case study you must complete a three-page memo. The case study must be done in
groups of two to four members. No late case memos will be accepted. The format of the case
write-up should be as follows:
Executive summary: here you briefly describe the situation, the key questions you address, and
short answers to these questions. Remember that if I ask you six questions, probably not all of
them are key questions.
Body of the write-up: here you give a more detailed description of the situation and explain how
you arrived at the answers to all the questions I posed. If you believe I have left out an important
question, try to formulate it yourself, and, if possible, try to answer it.
Appendix: this contains relevant exhibits and calculations that support your analysis. You should
only include exhibits that you explicitly mention in the main text, and you should clearly indicate
what information each exhibit provides. Do not forget to add titles.
1. The entire write-up should be no more than three pages excluding the appendix, and no
more than six pages including the appendix. The case write-up should be single-spaced
and typed in 12-point type with one inch margins. I will be very strict on this: if you
hand in more, I will only consider the first three pages of the written material and the first
three pages of the appendix. The reason to be strict is that I want you to learn to
formulate your thoughts in a concise manner. Chances are that your future boss will only
read the first page and glance through the rest.
2. It is not necessary to summarize the case situation in your write-up. Summarizing
the case is the most effective way to do poorly on the case. Do not, however, assume
that I know every single number and detail. Use your best judgment on how much of the
case to include in your write-up, but remember that no more than one short paragraph is
3. The second most effective way to do poorly on the case is to regurgitate the contents of
the class notes or the textbook. You need to apply the concepts you have learned to the
situation in the case.
4. Most importantly, you must take a position regarding the problem in the case and make
specific recommendations on how to solve it. Support your recommendations as
succinctly and as effectively as you can.
Attendance and Class Participation
You are expected to attend all class meetings. This is the most efficient way to do well in this
course. Although class attendance and participation do not count formally towards your grade, I
will consider them in borderline cases. Please let me know in advance if you will not be able to
attend class. Note that you are still responsible for learning the materials covered in all class
meetings, and your assignments are due on the announced dates. How useful this course is to you
will depend not only on what I teach you, but also on your dedication, hard work and class
participation. To this end, I will expect you to observe the following norms:
Come to class on time and stay the entire duration. Late arrival and early departure
without my explicit prior approval are not acceptable.
Please turn off mobile phones during the duration of the class. If you are interviewing,
recruiters will understand that they cannot reach you when you are in class. If some
emergency requires you to leave your cell phone on, please let me know before the class
Ask questions whenever something is not clear. It takes time to learn new concepts, and
asking questions helps. I view no question as “stupid.”
Participate actively in class lectures and case discussions. This way you will get the most
out of this course. I will systematically cold call on groups and individuals; so read the
assigned material before you come to class.
Please prepare a legible name card and put it up in front of you during every lecture.
Date Topic Read Do
Wednesday, January 18 Introduction Ch. 1
Monday, January 23 Mechanics of Futures Markets Ch. 2
Wednesday, January 25 Hedging with Futures Ch. 3
Monday, January 30 Hedging with Futures Ch. 3
Wednesday, February 1 Interest Rates and Bonds Ch. 4
Monday, February 6 Interest Rates and Bonds Ch. 5 Homework 1
Wednesday, February 8 Pricing Futures Ch. 5
Monday, February 13 Pricing Futures Ch. 6
Wednesday, February 15 Interest Rate Futures Ch. 6
Monday, February 20 Interest Rate Futures Ch. 7
Wednesday, February 22 Swaps Ch. 7
Monday, February 27 Swaps Ch. 7 Homework 2
Wednesday, March 1 Review STUDY!
Monday, March 6 Exam STUDY!
Wednesday, March 8 Options Markets Ch. 8
Monday, March 20 Properties of Options and Options Strategies Ch. 9
Wednesday, March 22 Options Strategies Ch. 10
Monday, March 27 Case: Liability Management at GM Case Memo
Wednesday, March 29 Binomial Trees Ch.11
Monday, April 3 Binomial Trees Ch.11
Wednesday, April 5 The Black-Scholes Model Ch. 12 Homework 3
Monday, April 10 Options on Indices and Currencies Ch. 13
Wednesday, April 12 Futures Options Ch. 14
Monday, April 17 The Greek Letters Ch. 15
Wednesday, April 19 The Greek Letters Ch. 15
Monday, April 24 Case: Leland O'Brien Rubinstein Case Quiz
Wednesday, April 26 Value at Risk Ch. 18 Homework 4
Monday, May 1 Review STUDY!
Wednesday, May 3 Exam STUDY!
Links to Exchanges and the CFTC
Commodity Futures Trading Commission http://www.cftc.gov/ The regulatory
agency for futures and options markets. Includes data on futures open interest.
CBOT: The Chicago Board of Trade http://www.cbot.com/ A great site for those
interested in a myriad of futures information - traders, students, and researchers. It
has 10 minute delayed quotes; a wealth of links to analysis firms, information
sources, reports, associations, data; a nice picture of the price board under "Market
Plex"; abstracts of CBT research seminars. One may also obtain a “Quicktime
movie" of the Agricultural Trading Floor.
CME: Chicago Mercantile Exchange http://www.cme.com/ It includes products,
current and historical prices, seat prices, and futures/options on futures expiration
dates. It also includes ten minute "Flash Quotes." Note the "News Center" for new
information - and the "frequently asked question" section. There is also information
on GLOBEX (after hours trading system), performance bond (margin) and the
SPAN risk requirements. The section on "Do you have a future in futures?"
provides a description on exchange jobs and their responsibilities, as well as firms
who regularly trade futures.
CBOE: Chicago Board Options Exchange http://www.cboe.com/ The original
options exchange. It gives bid and ask prices, and volume and open interest. It
provides a "virtual visit" of the trading floor. Visit the structured products area.
LIFFE: London Futures Exchange http://www.liffe.com/ It provides some
interesting historical graphs and statistics for LIFFE contracts. Provides all of the
bid, ask, and trade pries for LIFFE contracts and corresponding volumes for the
AMEX: American Stock Exchange (option products)
http://www.amex.com/options/options.htm AMEX options and discussion of their
products. Especially look at their new/innovative products in the emerging markets
area and the structured derivatives section.
Kansas City Board of Trade http://www.kcbt.com/ An agricultural exchange for
The Coffee, Sugar, and Cocoa Exchange http://www.csce.com/ It shows how these
markets work, including examples of hedging and tactics.
Philadelphia Stock Exchange http://www.phlx.com/ The primary exchange for
trading foreign currency options.
Please answer the questions below, sign the statement on the bottom, and return the completed
form to me by 5:00 p.m. on Wednesday January 25th. This sheet will count for the first problem
in the first homework. Thanks!
1. How would you like to be addressed?
2. What is your e-mail address?
3. What is your home country?
4. What is (are) your major(s)?
5. When do you expect to graduate?
6. Please attach a photograph on the back. A copy is fine, as long as it is clear.
7. Are you currently taking Gen Bus 304 or an equivalent statistics course? If not, when did
you complete the stats requirement for this course, and which course did you take?
8. What do you hope to learn in this class?
It is essential that all students clearly understand the course requirements at the beginning of the
semester. Please read the syllabus carefully before signing the statement below.
I have read the syllabus for Finance 330 carefully and I agree to the terms of the course.
Name (please print) ____________________________________________________
Student ID Number ____________________________________________________
Lecture # ____________________________________________________________