HASKAYNE SCHOOL OF BUSINESS

FNCE 745 L01

Futures and Options
Course Outline- Fall 2015

INSTRUCTOR
TELEPHONE
OFFICE
EMAIL
OFFICE HOURS
WEBSITE
LECTURE LOCATION
LECTURE TIME
TEACHING
ASSISTANT

TA Office Hours
COURSE
DESCRIPTION

COURSE OUTCOMES

Alexander David
403-220-6987
SH133
adavid@ucalgary.ca
Tuesday , 5:20 6:20 PM. Please Call me to open the door to
the FNCE Area
http://d2l.ucalgary.ca
SH210
Tuesday 6:30 9:15
The teaching assistant, Sina Rahimi, can help with
conceptual or homework questions for the course. He will
also grade much of the material for the class. You can meet
him by appointment.
Monday, 5 6 PM in SH145.
After presenting basic definitions, institutional details, and
strategies, a general theory of derivative pricing based on the
principle of No Arbitrage will be developed. The student will
gain an understanding of several different types of
derivatives including futures, forwards, swaps, European and
American options. Besides pricing, there will be an emphasis
on understanding the structure of derivative markets and the
evolution of their particular design. The derivatives will
provide sophisticated tools for achieving goals in stock
markets, commodity markets, interest rate markets, and
exchange rate markets. The student will apply these tools to
important corporate and real production decisions and
understand how derivatives can increase the value of
corporations. Spreadsheets will be developed for
implementing both pricing and decision making.
After the completion of the course, students will be able to:
(i)
Understand the theory underlying the pricing of
derivatives
(ii)
Actually price a range of derivative products

(iii)
(iv)

REQUIRED
TEXTBOOK AND/OR
MATERIALS

Use derivatives for trading strategies

Structure financial transactions using forward prices
and rates
(v)
Use derivatives for corporate financial and real
production decisions
(vi)
Compare standard and options based salary structures
1. ``Derivatives Markets, 3rd Edition, Pearson Addison
Wesley by Robert L. McDonald, 2006.
2. Course pack from Harvard Publishing. Use this link:
https://cb.hbsp.harvard.edu/cbmp/access/39445737

CLASS
PREPARATION &
Desire2Learn

Lectures for the class are posted under ``Lecture Slides. The
lecture notes are quite comprehensive, but students are
encouraged to read the textbook for a more in-depth
understanding, as well as for practice questions.
We will not cover everything in the book though. It is too
large and has some very advanced sections. Also, I will not
be providing solutions to all the questions in the book. I will
provide solutions to questions assigned for the homework.
The exam questions will be based on material covered in the
class notes, homework, and case discussions. Homework
will be posted each week under ``Assignments. Students
should regularly check the Announcements section of D2L for
ongoing notices.

CONTACTING YOUR
INSTRUCTOR

Students requiring assistance are encouraged to speak to

their instructor during class or during their office hours.
Should you wish to meet with the instructor outside of office
hours, please telephone or email the instructor to make an
appointment? Students should get into the habit of making
and keeping business appointments.

PROPER BUSINESS
USE OF EMAIL

Email is commonly used by students to communicate with

their instructor. However, it does limit the effectiveness of the
communications and may not be the best way for instructors
to answer student questions, especially those requiring an
explanation of concepts covered in this course or some
personal concerns. Therefore the instructor may request a
telephone call or personal meeting. All emails should be
courteous and begin and end with a proper greeting.

INTERNET &
ELECTRONIC
COMMUNICATION
DEVICES

Any surfing of the Internet during lectures that is not directly

related to the class discussion is distracting and strictly
forbidden. Additionally, the use of any electronic devices
(e.g., cellular phones, Blackberries) for e-mailing, textmessaging, etc. is strictly prohibited. Please turn OFF your
phone before the beginning of each lecture. In those courses
for which there is a class participation component, it is
within the discretion of the instructor to determine the
appropriate grade.

GRADE
DISTRIBUTION
FNCE 745 Futures and Options
2

Class Participation
Quizzes

10%
15%

(insert in table your

course distribution &
rename items below
as applicable)

Class Participation

Quizzes

Cases

Midterm Exam

Case Questions
Midterm Exam
Final Exam
Total

15%
30%
30%
100%

Answering questions that the instructor asks in class. Making

clarifying comments that make the concepts clearer for fellow
students. Discussing in an interesting and insightful way the
details and issues with the weeks trading strategies. Please
have your name placards displayed so the instructor can
learn your name.
Homework will be assigned each week. Solutions will be
posted. You are responsible for going over the homework, and
there will be an in-class quiz at the beginning of each lecture,
except in the weeks when a case assignment is due. In all
there will be 5 quizzes, whose dates are noted in the course
schedule below. The material for the quiz includes homework
that has been posted in the time between the previous
quiz/exam and the date of the current quiz.
We will attempt to stick to the dates for the case discussions
as listed in the ``Class Schedule below, but there may be
some reasons to postpone the discussion, if the pace of the
class slows. The week before the case discussion questions
will be assigned. Students will provide brief and to-the-point
answers to the questions. The answers should be typewritten
and should be in most two pages of typewritten text, with a
font size of at least 11. Students must work in groups of 4
and each group will hand in a single write up. The grading on
the case will give points to the correctness of the solution as
well as the exposition and quality of writing.
Open book exam. Please bring your laptop so you can use the
spreadsheets that we use in the homework to solve problems.

Final Exam

Open book exam. Please bring your laptop so you can use the
spreadsheets that we use in the homework to solve problems.

Grade Scale

The Haskayne School of Business endeavours to ensure

consistency of final grades across courses and sections.
Variations in distribution will always be considered by the
instructor where called for by the performance in each
individual class.
Grad
e

FNCE 745 Futures and Options

3

Percentag
e (%)

Description

A+
A
A-

Grade
Point
Value
4.0
4.0
3.7

5
20
25

B+

3.3

40

Outstanding
Excellent
Very good
performance
Good performance

3.0

BC+
C

2.7
2.3
2.0

10

Satisfactory
performance
Minimum pass
All grades below B- are
indicative of failure at
the graduate level and
cannot be counted
toward the course
requirements.

Note: See the Academic Standing section of the Faculty of

Graduate Studies Calendar regarding grades less than B-.

DEFERRED EXAMS

Writing of a midterm after the normal scheduled date may be

allowed in cases of illness, domestic affliction, or religious
conviction. If you are requesting a subsequent midterm you
must contact your instructor before the exam and proper
documentation must be submitted prior to approval of a
subsequent midterm. Please refer to the current University of
Calgary Calendar for more information.

Missing Lectures

Students should only miss lectures for emergencies. Health

problems and job related problems must be verified with
letters from a doctor or supervisor. Missing 1 to 2 lectures
without a letter will not lead to any deduction of class
participation points. Please do not expect to disappear for
any reason for a significant part of the semester and be
allowed to take the exam. If you cannot commit to attending
lectures, please consider dropping the class immediately.
As the grading of any exam is open to human error, please
feel free to question your results. Students have fifteen
calendar days (15) from the posting of the exam results to
appeal an exam grade. Students are encouraged to consult
the current University Calendar for more information.

APPEALING AN
EXAM GRADE

UNIVERSITY REGULATIONS

Academic Accommodation:
The University of Calgary is committed to ensuring that each student is afforded an
academic environment that has been developed on the principles of equal and
equitable access, respect for individual differences, and academic integrity.
Student Accessibility Services (SAS) offers services to students with
documented disabilities including learning disabilities, chronic health issues, hearing
and visual impairment, disabilities and temporary impairment due to accident,
illness or injury. It is the students responsibility to contact Student Accessibility
Services to request academic accommodation. The nature and type of academic
accommodations vary from student to student and are dependent upon the
student's disability and the academic requirements.
If you are a student with a documented disability who may require academic
accommodation and have not registered with Student Accessibility Services, please
FNCE 745 Futures and Options
4

contact their office at 403.220.8237. Students who have not registered with
Student Accessibility Services are not eligible for formal academic accommodation.
Students are also required to discuss needs for accommodation with the instructor
no later than fourteen (14) days after the start of this course.
http://www.ucalgary.ca/access
Academic Honesty:
Academic honesty is the cornerstone in the development of knowledge. If a student
allows his/her name to stand on group work when in fact there is essentially no
contribution made, then that student is guilty of academic misconduct. A single
offence of cheating, plagiarism or other academic misconduct on term work, tests or
final examinations etc., may lead to disciplinary probation or a students suspension
or expulsion from the Faculty by the Dean. Please refer to the current University
Calendar for further details.
Plagiarism:
Plagiarism is a serious offence. According to the University Calendar plagiarism
involves submitting or presenting work in a course as if it were the students own
work expressly for that particular course when, in fact, it is not. Please refer to the
current University Calendar for further details.
You must document not only direct quotations but also paraphrases and ideas
where they appear in your text. A reference list at the end is insufficient by itself.
Readers must be able to tell exactly where your words and ideas end and other
peoples words and ideas begin. This includes assignments submitted in nontraditional formats such as Web pages or visual media, and material taken from
such sources. Please consult your instructor or the Writing Centre (SS110) if you
have any questions regarding to properly document sources.
Software Policy:
Faculty, students and staff of the University of Calgary are expected to use software
in a lawful manner in accordance with the Canadian law of copyright and the
softwares specific license conditions.
Copyright and Photocopying:
All material used in this course is for the sole use of the individual and should not be
recopied either in print or digital format. For copyright guidelines and University of
Calgary policies please visit: http://library.ucalgary.ca/copyright. All copyright related
questions can be directed to the Copyright Office: copyright@ucalgary.ca
Recording Lectures:
Recording of the lectures and labs is permitted for individual private study, but only
with instructor approval. Any other use of recording constitutes Academic
Misconduct and may result in suspension or expulsion.
UNIVERSITY RESOURCES
The SU Wellness Centre Counselling, Health Services and Wellness
Programs
The SU Wellness Centre Counselling Services focus on three major areas: personal
counselling, career development and academic success. To learn more about
services, wellness programs, and assistance, please phone 403.220.5893 or visit
the website at: http://www.ucalgary.ca/counselling/
The Student Success Centre
FNCE 745 Futures and Options
5

The personalized planning and support available at the Student Success Centre
includes advising, learning and writing support, student success seminars and
online resources. The Writing Support Services at U of C are housed at the SSC. For
general inquiries and appointments: 403.220.5881; success@ucalgary.ca
http://www.ucalgary.ca/ssc
Student Accessibility Services
The mission of Student Accessibility Services (formerly the Disability Resource
Center) is to work collaboratively and innovatively with the campus community to
create an accessible, equitable and supportive learning and living environment that
enhances each student's academic and personal development. SAS houses the Nat
Christie Adaptive Technology Centre, a technology lab and quiet study area where
students can study, be trained on, and make use of, a range of assistive and
adaptive hardware and software options. http://www.ucalgary.ca/access
MBA Society Representatives:
Email: ahalusch@ucalgary.ca
Alexandra Haluschak, President
jessicahengzhang@gma Jessica Zhang, VP Academic
il.com
Freedom of Information and Protection of Privacy Act:
For information on the Freedom of Information and Protection of Privacy Act please
visit: http://www.ucalgary.ca/secretariat/privacy
Safe Walk:
http://www.ucalgary.ca/security/safewalk
Office of the Ombudsperson:
http://www.ucalgary.ca/provost/students/ombuds
Class Schedule & Topics:
Important dates (e.g. Block Week, Lecture start dates, Reading Week, etc.) can be
found at the following web site:
http://www.ucalgary.ca/pubs/calendar/current/When/AcdschGS.htm

COURSE SCHEDULE (insert course name and session)

DATE
TOPIC
CHAPTER
September
Introduction to Derivatives,
1
8
Hedging and Simple Strategies
2
September
(i)
More Strategies with
3
15
Options
5
Quiz 1
(ii)
Start Financial Forwards
September
(i)
Case Discussion: ``How
Case
22
Financial Engineering Can
Advance
Corporate Strategy
5
(ii)
Financial Forwards,
Futures, and Swaps

FNCE 745 Futures and Options

6

September
29
Quiz 2

(i)

Commodity Forwards and

Futures

October 6

(i)

Interest Rate Forward

and Futures
Case Discussion:
``Carrefour S. A.
Swaps

(ii)
October 13
Quiz 3
October 20
October 27
November 3
Quiz 4
November
17

(ii)
(i)
(ii)

November
24
Quiz 5
December 1
Quiz 6
December 8

FNCE 745 Futures and Options

7

Midterm
Binomial Option Pricing

(i)
(i)

(i)
6
(ii)``Futures
Market
Failure
7
Case

Understanding Early
Exercise and Risk-Neutral
Valuation
The Black-Scholes Formula
Case Discussion: ``Sally
Jameson
Additional consideration in
the use of executive stock
options

(i)

Options Greeks and

Investment Strategies
with Options
(ii) Covered Calls Strategies
Used by Hedge Funds
(i)

Perpetual
Options
(ii)
Real Options
Case Discussion:
``Contractual Innovation
in Enron

10
11
12.1, 12.2,
Case
16

(i)

12.3, 12.5
(ii) ``Eight
Myths and One Fact
About Covered Calls
12.6
17
Case