West Virginia University

College of Business and Economics

FIN 411 Derivatives
Fall 2008
Tuesday, Thursday, 1:00-2:15 p.m., 242 B&E

Course Description: Derivative security markets are an extremely important, innovative and rapidly growing segment of financial markets. The notional value of outstanding derivative contracts is in the hundreds of trillions of dollars. Corporate treasurers and portfolio managers routinely use derivative securities for mitigating complex risks inherent in the financial markets. This course examines the fundamentals of derivatives markets.

Course Objectives and Learning Outcomes: Upon successful completion of this course, the student will:

• Understand how derivative securities work and how they are traded.
• Understand the principles of derivatives pricing, including the implications of arbitrage.
• Be able to price forward and futures contracts using the cost of carry model.
• Be able to value options using the binomial and Black-Scholes option pricing models.
• Be prepared to use futures and options in financial risk management, speculation and arbitrage.
• Learn important lessons from derivatives disasters.

Prerequisites: BCOR 340 Business Finance, FIN 310 Investments. Knowledge of basic algebra and basic calculus is assumed.

Required Materials:

Fundamentals of Futures and Options Markets, 6^th edition by John Hull. Pearson/Prentice Hall, 2008.

The textbook is the main source of information for the course. I will make regular assignments from the text. The layout of the course requires that you complete the reading assignments prior to class. Your goal in reading must be true understanding of the material, not memorization. I expect you to come to class prepared for active participation.

Recommended Additional Reading:

• The Wall Street Journal or other financial newspapers.

• Risk Takers: Uses and Abuses of Financial Derivatives by John Marthinsen. Pearson Addison-Wesley, 2005.

WVU eCampus: I will use WVU eCampus (https://ecampus.wvu.edu/) throughout the course to post announcements, classroom handouts and other class materials.

Course Activities:

• Homework Assignments: Suggested homework assignments will be posted on eCampus and should be completed, but do not need to be turned in. Working on these assignments will help you prepare for exams. I encourage you to work as many additional problems from the book as possible.
• Group Project: The group project will involve investigation of an issue related to the use of derivative securities. Each team will be required to turn in a written report and present their analysis of the issue in class. The tentative due date is December 2. No projects will be accepted after the due date. Detailed instructions will be provided.

Regularly Scheduled Exams: There will be three midterm exams during the semester, tentatively scheduled for September 18, October 16, and November 13. The midterm exam dates will be confirmed at least a week in advance of the exam. A comprehensive final exam is scheduled for 3:00 p.m. on December 9. No make-up exams will be given except by prior arrangement with the instructor.

Attendance: Regular attendance is important. Students who attend classes regularly tend to earn higher grades. Consistent with WVU guidelines, students absent from regularly scheduled examinations because of authorized University activities will have the opportunity to take them at an alternate time.

Determination of Grade: Your grade for the course will be determined as follows:

Your lowest midterm exam score will count for 10% and the other two midterms will each count for 23%. The final grade will be determined using the following scale: A: 90-100; B: 80-89; C: 70-79; D: 60-69; F: below 60.

Academic Dishonesty: Academic dishonesty in any form will not be tolerated.

NOTE: The instructor reserves the right to change this syllabus as time and circumstances dictate. Necessary changes will be announced in class in advance when possible.

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