FINA 3204: Derivative Securities

Spring 2015
Department of Finance
Hong Kong University of Science and Technology

Instructor:

Prof. Andrew Chiu

(andrew.chiu@ust.hk)

Office Hours:

By appointment

Course Website:

http://lmes.ust.hk

Course Feedback:

http://fina3204.andrewchiu.com (anonymous)

Teaching Assistant:

Mandy So (mandyso@ust.hk)

Venue:

G007, LSK

Schedule:

L1: Tue & Thu (16:30-17:50)

L2: Tue & Thu (15:00-16:20)
Feb 3 to May 7, 2015

Course Objectives:
This course provides practical working knowledge of various derivatives including
forwards and futures, options, and swaps. The students will learn how derivatives are
traded, how to evaluate payoffs for investors, and understand how to value them.
Examples will be provided to show how the models and principles are applied to
real-world problems.

Textbook and Course Materials:

John C. Hull, Options, Futures, and Other Derivatives, 8nd Edition, Pearson
The textbook is required and will be made available at the university bookstore.
Additional materials (slides, articles, etc) will be posted on the course website.

Grading:
1.
2.
3.
4.

Assignments (five in total)

Pop Quizzes (lowest score dropped)
Mid-term Exam
Final Exam

25%
10%
25%
40%

Late assignments will be penalized 25% per day.

Class participation is important, but not graded. For marginal cases, a bonus may be
given for active participants.

Pop Quizzes:
Short quizzes will be given out at the end of a few select lectures. Students will not
know in advance which lectures will have quizzes. The lowest quiz score will be
dropped.

Simulated Trading Exercise (option):

You need hands-on experience to better understand how derivatives work. Ive set up a
simulated trading platform for you to trade derivatives without risking real money.
This is an optional assignment. I encourage everyone to practice trading while you are
going through the course. I will send out invitations on how to set up the trading
account. The system we use is a real trading platform used by professional traders.

Course Topics:
Topic Name

Assigned Textbook Chapters (8th ed.)

Introduction to Derivatives
Continuously Compounded Interest Rate

1.1-1.10
4.2

Forwards and Futures

Market Mechanics

2.1-2.4, 2.6, 2.7, 2.11

Forwards and Futures

Hedging Strategies
Pricing

3.1-3.3, 3.6
5.1-5.7, 5.9-5.12

Options
Market Mechanics

9.1-9.4, 9.7, 9.8, 9.11

Options
Properties of Stock Options

10.1-10.7

Options
Trading Strategies

11.2-11.4

Options
Pricing: Binomial Tree Model
Modeling Stock Returns and Volatility

12.1-12.9
14.1, 14.2, 14.4

Options
Pricing: The Black-Scholes-Merton Model
Implied Volatility
Volatility Smile

14.5, 14.8, 14.9

14.11
19.1-19.3, 19.5

Options
Options on stock indices and currencies
Futures Options
Binomial Tree for options on dividend-

16.1-16.6
17.1,17.4-17.6,17.8
20.3

paying stocks
Options
The Greek Letters
Delta Hedging
Other Derivatives
Swaps

18.1-18.14

7.1, 7.4, 7.7, 7.9, 24.1

Other Derivatives
Warrants, Callable Bull/Bear Contracts
Convertible Bonds
Equity-Linked Notes

Library Resources:
Wall Street Journal (full online version)
Bloomberg Station (library reservation)
Reuters Eikon (remote access)

library.ust.hk/cgi/db/pw.pl?wsj
lbpcbook.ust.hk
library.ust.hk/cgi/db/xtra.pl

Useful Websites:
Hong Kong Exchange
Chicago Board Options Exchange (CBOE)
Chicago Mercantile Exchange (CME)
Bloomberg
Reuters
Yahoo Finance
Google Finance

www.hkex.com.hk
www.cboe.com
www.cmegroup.com
www.bloomberg.com
www.reuters.com
finance.yahoo.com
finance.google.com