All readings are required unless they are indicated as “Optional”. Short quizzes will be administered at the beginning of class on each of the dates indicated for required readings.

We will follow the reading schedule given below:



January 11

1. Optimization (chapter 2 from Managerial Economics, by W. Bruce Allen, Neil Doherty, Keith Weigelt, and Edwin Mansfield, 6th edition (2005))
2. How long does it take to double (triple/quadruple/n-tuple) your money?, by James R. Garven

January 18

1. The New Religion of Risk Management, by Peter Bernstein
2. Normal and standard normal distribution, by James R. Garven

January 25

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

January 30

1. Hull Chapter 5 (“Determination of Forward and Futures Prices”)
2. A Simple Model of a Financial Market, by James R. Garven

February 6

1. Hull Chapter 11 (“Properties of Stock Options”)
2. Properties of Stock Options Chapter synopsis, by James R. Garven

February 8

Hull Chapter 12 (“Trading Strategies Involving Options”)

February 20

1. Hull Chapter 13 (“Binomial Trees”)
2. Binomial Option Pricing Model (single-period), by James R. Garven
3. Multiple Period Binomial Option Framework, by James R. Garven
4. Dynamic Delta Hedging Numerical Example (calls and puts), by James R. Garven
5. Dynamic Replicating Portfolio Numerical Example (calls and puts), by James R. Garven
6. Convergence of the Cox-Ross-Rubinstein (CRR) Binomial Option and Black-Scholes-Merton (BSM) Option Pricing Formulas, by James R. Garven

March 20

Early Exercise of American Call and Put Options on Non-Dividend Paying Stocksby James R. Garven

March 22

1. Hull Chapter 14 (“Wiener Processes and Ito’s Lemma”)
2. Applying Ito’s Lemma to determine the parameters of the probability distribution for the continuously compounded rate of return, by James R. Garven
3. Geometric Brownian Motion Simulations, by James R. Garven

April 5

1. Hull Chapter 15 (“The Black-Scholes-Merton Model”)
2. Geometric Brownian Motion, Ito’s Lemma, and Risk Neutral Valuation, by James R. Garven
3. Derivation and Comparative Statics of the Black-Scholes Call and Put Option Pricing Equations, by James R. Garven