Stefan Ruenzi

University of Mannheim

http://intfin.bwl.uni-mannheim.de

lsruenzi@bwl.uni-mannheim.de

Tel: +49 (621) 181-1646

FIN 580 – Derivatives I: Basic Derivatives Strategies and Pricing

00 – Organizational Preliminaries

© 2014 Stefan Ruenzi FIN 580 – Derivatives I: 00 – Organizational Preliminaries

Outline

2

0. Organizational Issues

1. Introduction

2. Trading Strategies

3. Forwards

4. Futures

5. Swaps

6. Options

7. Impact of Derivatives on Markets & the Macroeonomy

© 2014 Stefan Ruenzi FIN 580 – Derivatives I: 00 – Organizational Preliminaries 33

FIN580 – Derivatives IOrganizational Preliminaries

When and where is this course?

Where do I get information and what textbook will we use?

What should I know and what do I have to do?

What can I expect from the professor?

What is ‘Derivatives I’ (not) about?

© 2014 Stefan Ruenzi FIN 580 – Derivatives I: 00 – Organizational Preliminaries 4

When and where is this course?

Lectures: Mon, 12-1:30 (in O 142 - starting Sept. 8, 2014)

Tue, 8:30-10:00 (in O142 - starting Sept. 2, 2014)

Exercise Classes: Mon, 1:45-3:15 (in O142; starting date will be announced; no exercise class on September 1)

Exercise Classes will be offered regularly. Schedule will be announced.

Responsible TA: Pavel Lesnevski (L9, 1-2, Rm. 403)

Office Hours: Tuesday, 14:00-15:00

© 2014 Stefan Ruenzi FIN 580 – Derivatives I: 00 – Organizational Preliminaries 5

Where do I get information about the course?

In Lectures & Exercise Classes

Website: http://intfin.bwl.uni-mannheim.de

Slides will be provided for downloading on Illias system – Please register!

Announcements send to class via Illias; forum on Illias can be used for communication

Textbooks and additional readings as announced

© 2014 Stefan Ruenzi FIN 580 – Derivatives I: 00 – Organizational Preliminaries 6

Textbooks & Readings IIntroductory Books

Hull, J. (2013): Fundamentals of Futures and Options Markets (8th edition)

Chance, D. M. & Brooks, R. M. (2012): An Introduction to Derivatives and Risk Management (9th edition)

McDonald, R. M. (2008): Fundamentals of Derivatives Markets (International edition)

© 2014 Stefan Ruenzi FIN 580 – Derivatives I: 00 – Organizational Preliminaries 7

Textbooks & Readings IIMain Suggested Textbooks

Hull, J. (2011): Options, Futures, and other Derivatives 8th edition). OFD. There is also a German version of this book available.

McDonald, R. L. (2012): Derivatives Markets. DM (3rd edition)

© 2014 Stefan Ruenzi FIN 580 – Derivatives I: 00 – Organizational Preliminaries 8

Textbooks & Readings IIIAlternative Textbooks

Cox, J.; Rubinstein, M. (1985)

Options Markets.

Prisman, E.Z. (2001)

Pricing Derivatives Securities.

Bossu, S.; Henrotte, P. (2012)An Introduction to Equity Derivatives (2nd edition).

Elliott, R.J., van der Hoek, J. (2009)

Binomial Models in Finance.

Baxter, M; Rennie, A. (1996)Financial Calculus: An Introduction to Derivative Pricing

Neftci, S.N. (2000)An Introduction to the Mathematics of Financial Derivatives (2nd ed.).

© 2014 Stefan Ruenzi FIN 580 – Derivatives I: 00 – Organizational Preliminaries 9

What should I know and what do I have to do?

You should be familiar with

Basic math and statistics (expected values, variances & covariances, statistical distributions)

Basic knowledge from Finanzwirtschaft I & II

You should …

Come to lectures and be prepared

Check the website for announcements

Register on Illias and look out for messages

Read assigned readings and go through slides before lectures

Prepare solutions to assigned problems before exercise classes

© 2014 Stefan Ruenzi FIN 580 – Derivatives I: 00 – Organizational Preliminaries 10

What can I expect from my professor?

We are here to learn and understand

Creation of Knowledge is a ‘Joint Production’

Your professor will- Present the course content and introduce new concepts

- Show how to apply concepts using examples

- Practice new material in the practice session

- Answer your questions

- Grade your exams in a fair and timely manner

© 2014 Stefan Ruenzi FIN 580 – Derivatives I: 00 – Organizational Preliminaries 11

Classroom Policy

Switch off mobile phones/Blackberries at ALL times

Try not to come late or leave early

You are allowed to use Laptops only for taking notes. You are NOT allowed to surf the web! This right might be revoked if abused.

Participate Actively- Ask Question

- Answer Questions

© 2014 Stefan Ruenzi FIN 580 – Derivatives I: 00 – Organizational Preliminaries 12

What is this course NOT (mainly) about?

Corporate risk management

Real options

Advanced pricing techniques using concepts from continuous time finance or calibration exercises.

© 2014 Stefan Ruenzi FIN 580 – Derivatives I: 00 – Organizational Preliminaries 13

Why should I take this course?

Fascinating area of finance (Nobel Prices)

Crucial to know how these important (and dangerous) instruments work

Models we analyze are extremely flexible and used in practice (e.g. Binomial Model, Black/Scholes)

Excellent job market prospects

© 2014 Stefan Ruenzi FIN 580 – Derivatives I: 00 – Organizational Preliminaries 14

Assignments

Register on Illias for Derivatives I

Make up your mind on the question: “Why did I take this course”

Check out the www.wsj.com website to get an idea about available products (click on “Market Data” and then choose “Commodities and Futures”)

© 2014 Stefan Ruenzi FIN 580 – Derivatives I: 00 – Organizational Preliminaries 15

„When a person with money meets aperson with experience, the person withthe experience winds up with the moneyand the person with the money winds upwith the experience. „