Options, Futures, and Derivative Securities, FIN 451

Philip H. Dybvig
Washington University in Saint Louis

syllabus site-of-the-week practice slides

Welcome to Options and Futures! This course introduces the popular option pricing tools that have come to be used in all areas in finance. The concepts, tools and applications promise to make this a great term!

Bill Drobny of UBS is our class speaker tomorrow. He will talk about "dynamic alpha strategies," a derivatives-based product at UBS. He will also talk about connections between marketing and finance.

Download his handouts here.

Site of the week! Traditional approaches to financial planning are naive. For example, one traditional approach asks the individuals how long they will live and what average return they will get on their investments, both of which nobody knows! E$Planner is an innovative financial planning program which simulates your retirement finances using the actual complex tax code. It can be used to analyze many choices about retirement, housing, investments, and spending.

Previous sites of the week

I finished grading the exams. I was very happy with the performance. The lowest grade was a B, and that is not because I am an easy grader. Almost everyone got full credit on Part A and half to full credit on part C. Most people missed part but not all of Part B. Part D was difficult (as intended) and only a couple of people got full credit or close to full credit, but I gave partial credit to many people.

The exams should be in mailfiles. If you do not have a mailfile, you should have gotten an e-mail asking you to collect the exam in Simon 220. That office will be closed Wednesday through Friday.

Exam - Solution

We have some interesting things scheduled for the coming weeks! Mark your calendars for upcoming events:

...you... October 25 Submit preliminary group project descriptions
Ron Allen (Wash U) October 30 Financial Data Sources
Dan Scholz (NISA) November 1 Portable Alpha Strategies
Dong Chuhl Oh (Wash U) November 2 (2:00-3:00) Simon 113 Options and Futures Prices and Contract Terms
Review November 6
Midterm Exam November 8
Joe Langsam (Morgan Stanley) November 13 TBA
Bill Drobny (UBS) November 20 TBA

Note that I am asking you to bring a description of who is in your group and what is your project idea to class on Thursday (or send it to me by e-mail if you have an interview or other conflict). Ron Allen is coming on October 30 to discuss financial data sources; let me know if there is something you would especially like him to talk about.

Dong Chuhl Oh, our TA, will present a session on reading financial screens and looking up contract specifications.

Are you prepared for the exam? I suggest working the practice problems (and checking your answers against the solutions provided) to help to make sure there are not any gaps in your understanding of the materials in the slides.

Reminder: The exam will be held in-class on Thursday, November 8.

Practice Problems and Solutions

Lecture 1: Problems - Solutions

Lecture 2: Problems - Solutions

Lecture 3: Problems - Solutions

Lecture 4: Problems - Solutions

Lecture 5: Problems - Solutions

Practice exams

(I) Exam - Solution

(II) Exam - Solution

(III) Exam - Solution


I recommend that you print a set of slides before class for taking notes and solving in-class exercises. One set of slides corresponds to one week (two classes) of lectures.

The condensed versions below shrink each slide to the corner to leave more room for taking notes. The regular pdf versions are the same as the slides used in class.

Lecture 1: Foundation
...pdf size 41K
...pdf condensed size 41K

Lecture 2: Binomial Option Pricing and Call Options
...pdf size 85K
...pdf condensed size 85K

Lecture 3: Put Options and Distribution-Free Results
...pdf size 89K
...pdf condensed size 89K

Lecture 4: The Black-Scholes Model
...pdf size 117K
...pdf condensed size 117K

Lecture 5: Forwards, Futures, and Futures Options
...pdf size 62K
...pdf condensed size 63K

week 6: wrap-up and review