Prof. Dr. Andrea Gaunersdorfer

**Time and place: **

Lecture: (20 309 V2) |
Thu, 11-13, G22A-020 |

Tutorial: (20 310 Ü2) |
Thu, 15-17, G22A-020 The tutorial starts on April 17. On April 10 there will be a lecture instead of the tutorial. |

Since there will be no lectures on June 20 and 27 the lectures and tutorial will be held 105 min hours (starting at 11.00 resp. 15.00). | |

Final Exam: | Thu, Aug.1, 2002, 15-16 |

**Overview:**

The course covers the basic principles of option pricing. In particular, we will discuss the Binomial Model, the Black-Scholes Model as well as some extensions.

Chapter outline:

- Introduction
- Trading Strategies Involving Options
- Properties of Stock Option Prices
- Binomial Trees and Risk-neutral Valuation
- The Black-Scholes Model
- Options on Stock Indices, Currencies, and Futures
- The Greek Letters
- Interest Rate Derivatives

**Text:**

- [Hull]
*J.C. Hull*, Options, Futures, and Other Derivatives (4th ed.), Prentice-Hall Internat., Upper Saddle River, NJ, 2000. - [Hull - IFOM]
*J.C. Hull*, Introduction / Fundamentals to Futures and Options Markets (3^{rd}ed. 4^{th}ed.), Prentice-Hall Internat., Upper Saddle River, NJ, 1997 / 2001.(on the webpage of John Hull you find Power Point slides for downloading) *S. Benninga*, Financial Modeling (2nd ed.), MIT Press, Cambridge MA, 2000 (parts III, V).*EUREX*Equity and Index Products and Trading Strategies Brochure

Source for slides: *John Hull, Options, Futures, and
Other Derivatives (4th ed.)*, and *Fundamentals to Futures and Options Markets
(4th ed.)*

last update of file in the copy shop: Wed, May 29, 1.15 p.m.

(I noticed that slides 5 (Hull, ch.11) are missing, I will add them soon.)

Date | Topic |
Text |

April 11, 2002 | Introduction (slides1 - last update: April 9, 2002) | Hull, ch. 1, 2.1-2.3, 5.1, 6 Hull - IFOM, ch. 1 EUREX Brochure |

April 18, 2002 |
Trading strategies (slides2) Properties of Stock Option Prices (slides3) problems 1-13 In the file in the copy shop you find options quotes from April 12. |
Hull, ch.8, 7 |

April 25, 2002 | Binomial model
(slides4) problems 14-21 |
Hull, ch.9 |

May 2, 2002 | Binomial model (cntd.)
problems 22-32 (corrected: 30.4., 3.10 p.m.) correction of problem 25: stock price: 64 (instead of 47), risk-free interest rate: 12% (instead of 6%) |
Hull, ch. 16.1 |

May 16, 2002 | Binomial model (cntd.) Behavior of stock prices (slides4a) problems 22, 30, 31, 32c, 33-36 |
Hull, ch. 10.1,4-5, 11 |

May 23, 2002 |
Black-Scholes Model (slides5)
problems 30, 31, 34, 37-42 |
Hull, ch. 11 Benninga, parts III and V (implementing problems in Excel) |

May 30, 2002 | Black-Scholes Model Volatility problems 38-44 (note the correction/supplement in problems 42 and 43!) |
Hull, ch. 11 |

June 6, 2002 |
Volatility Smiles (slides6) Option pricing when the underlying pays dividends (note: slide no.29 from "slides4" has been moved to "slides5") no tutorial |
Hull, ch. 17.1-6, 17.10, 11.12, 16.3 |

June 13, 2002 |
Options on stock indices, currencies, and futures
(slides7) problems 45-49 |
Hull, ch. 12, 16.2 |

June 20, 2002 | no lecture | |

June 27, 2002 | no lecture | |

July 4, 2002 | Options on stock indices, currencies, and futures The Greek Letters (slides8) (in the afternoon: lecture instead of tutorial) |
Hull, ch. 12, 16.2 (for facts about futures see ch.3); 13, 16.1 (second part) |

July 11, 2002 | problems 50-62 |

- In 1997 Robert C. Merton, Myron S. Scholes received the Nobel price "for a new method to determine the value of derivatives"
- see also: The Nobel Prize Internet
Archive
- Deutsche Börse Group
- Exchanges
- EURIBOR Homepage
- Option Valuation (WWWFinance by Campell R. Harvey)
- Campbell R. Harvey's Financial Toolbox:
- Campbell R. Harvey's Java Finance Tools:
- Investopedia: Option Basics
- Financial Tutorial
- Glossary of Options And Futures Related Terms
- Business.com:
Options Pricing Theory and Strategies
- Numa Financial Systems (home page for financial derivatives)
- On-line Option Calculators:
- Black-Scholes: Overview
- Useful Finance Websites