Syllabus
Instructor
- Lorenzo Naranjo
- Simon Hall 281
- naranjo@wustl.edu
Times and Location
Section 1
- Tuesday/Thursday
- 10:00am to 11:20am
- Simon Hall 103
Section 2
- Tuesday/Thursday
- 1:00pm to 2:20pm
- Simon Hall 103
Section 3
- Tuesday/Thursday
- 2:30pm to 3:50pm
- Simon Hall 103
Section 4
- Tuesday
- 6:15pm to 9:15pm
- Simon Hall 103
Please use your WashU email in all communications with me.
Class Information
Course Description
This course overviews the pricing, hedging and applications of options, forward, and futures contracts. We will discuss the basics of options, forwards and futures markets, analyze options’ strategies and the characteristics of option prices, introduce the binomial option pricing model for both European and American options, and discuss the use of various futures contracts to hedge commodity, interest rate, currency, and stock market risk, among other risk exposures.
Office Hours
I will host regular office hours on Tuesday and Thursday from 4 to 5pm. You can attend in person (SH 281) or via Zoom.
Attendance and Participation Policy
Class participation, classroom interaction, and collaboration are a signature of the Olin culture and Code of Conduct. Class time is critical to learning, and prompt attendance during our class times is expected.
If you are on time and remain in class for its duration you earn full attendance credit. Everyone is allowed one unexcused absence. If you have already used your unexcused absence, further absences may be excused by the instructor for illness, emergency, religious holiday, participation in a Washington University related Sport or Club (with note from coach or faculty supervisor) or military deployment. Please email the instructor to request an excused absence.
Three late arrivals and/or early departures will equal one absence. If a student misses more than 20 minutes of a class, they are considered absent.
Students that contribute by regularly asking questions in class might be awarded extra participation points. Note that asking questions during office hours, during breaks or after class does not count as class participation.
All students are expected to attend in person. All classes will be recorded using Kaltura. If you miss a class please make sure to watch the corresponding recording and ask me questions if you need help. There will be no hybrid option via Zoom in this class except for PMBA students who have been authorized to attend remotely can do so via Zoom. I will share the Zoom link with them personally.
If the teaching evaluation response rate reaches 75% or more, then every student gets an extra attendance point.
Students who have symptoms of COVID-19 must call the COVID Call Center or Habif Health and Wellness Center for testing and should not attend any in-person class. Missing in-person class sessions for this reason will be considered an excused absence. Students must provide appropriate documentation from Habif to obtain this exception.
Class Materials
All class notes with practice problems and solutions are available in this site. Also, you can find the slides for the class here. I might also post additional practice quizzes on Canvas.
In addition, you may complement the lecture notes with the following textbook:
- Options, Futures, and Other Derivatives by John Hull, 10th Edition, Pearson
Probably the most standard and popular text on derivatives among academics, students, and practitioners, this book serves as a useful reference not only for this course but also for years to come in your finance profession. Older editions (5th-9th) of the book are fine to use, too.
While our lectures present topics in a self-contained manner, reading the textbook will reinforce your learning from the lectures. The class covers chapters 1 to 5, and 10 to 13 from the textbook.
Grading
Your grade for the course will be determined by the group presentation, the group project, the final exam, and class attendance and participation. Following is the summary of weights on the various components that I will use to evaluate your performance in this course:
| Assignment | Weight |
|---|---|
| Project | 30 |
| Final Exam | 50 |
| Class Attendance | 20 |
Grades are non-negotiable. If you feel I have graded one of the course requirements incorrectly, please bring it to my attention immediately. Grade appeals (e.g., because your points were not added up correctly) must be submitted within a week after the grades are released. I certainly want all of you to receive the grades you have earned.
Individual Project
There will be a graded project that will allow you to work with real data and see how the theory works in practice. The deliverable will be a well formatted pdf document with answers to the questions and a Microsoft Excel spreadsheet that will be uploaded to Canvas. The project is individual and the work you submit must be your own. The deadline to submit the project will be Monday, February 26 Saturday March 2 at 11:59pm CST.
Final Exam
A final exam will be held on Friday, March 1 from 8:30 - 11:00 am CST. The final exam will be available on Canvas and is open-book and open-notes. All students will take the final exam at the same time. Questions will be presented one at a time, randomized and there will be no back-tracking, i.e. once you answer you cannot go back. The exam will have 35 questions.
During the exam, you are allowed to use:
- lecture notes, homework solutions, textbook, and self-prepared notes.
- calculator, laptop, or tablet if needed.
However, during the exam it is strictly prohibited to:
- use ChatGPT or any other AI chatbot.
- discuss, collaborate or share answers of your exam with anyone both inside and outside your class.
The exam time is non-negotiable. If you have a conflict, you must inform me by the end of the second class of the course. Hence, I encourage you to check your schedule early (e.g., make sure that the exam dates do not conflict with a religious holiday, etc.). If you think you will miss the final exam, please (1) immediately e-mail me prior to the exam time and (2) send me a justifiable and reliable proof of absence. Without clear and hard evidence, you will get no credit.
Honor Code and Code of Conduct
This course will follow the standards specified in the Code of Conduct and Code of Academic Integrity, which were presented to faculty and students of the Olin Business School. Students are expected to be familiar with the codes. Some relevant parts of the code are included in Section 5.8.
Olin’s Pillars of Excellence:
Values-based and Data driven; Global; Experiential; Entrepreneurship.
Olin students will: 1. Embody a values-based and data-driven ethos in their approach to all business situations. 2. Understand the global opportunities and challenges facing businesses. 3. Engage with business issues through the application of experiential knowledge, in addition to the rigorous technical skills acquired in the classroom. 4. Pursue world-changing initiatives with an entrepreneurial and innovative mindset and skill-set.
Course Schedule
The tentative course schedule for different sections is given below. The topics covered on each proposed date may change as the course progresses, but the main content and the general order should not vary.
Sections 1, 2 and 3
| Session | Date | Topic |
|---|---|---|
| 1 | 1/16 | Introduction |
| 2 | 1/18 | Interest Rates |
| 3 | 1/23 | Forward Contracts |
| 4 | 1/25 | Futures Markets |
| 5 | 1/30 | Options Contracts |
| 6 | 2/1 | Options Strategies |
| 7 | 2/6 | Options Spreads |
| 8 | 2/8 | Properties of European Options |
| 9 | 2/13 | Binomial Option Pricing |
| 10 | 2/15 | Multi-Period Binomial Option Pricing |
| 11 | 2/20 | Impact of Dividends |
| 12 | 2/22 | American Options |
| – | 3/1 | Final Exam from 8:30am until 11:00am CST |
Section 4
| Session | Date | Topic |
|---|---|---|
| 1 | 1/16 | Introduction |
| 2 | 1/16 | Interest Rates |
| 3 | 1/23 | Forward Contracts |
| 4 | 1/23 | Futures Markets |
| 5 | 1/30 | Options Contracts |
| 6 | 1/30 | Options Strategies |
| 7 | 2/6 | Options Spreads |
| 8 | 2/6 | Properties of European Options |
| 9 | 2/13 | Binomial Option Pricing |
| 10 | 2/13 | Multi-Period Binomial Option Pricing |
| 11 | 2/20 | Impact of Dividends |
| 12 | 2/20 | American Options |
| – | 3/1 | Final Exam from 8:30am until 11:00am CST |
Other Important Matters
COVID-19 Health and Safety Protocols
Students experiencing symptoms consistent with COVID-19 or concerned about a possible exposure should contact Habif Health and Wellness Center (314 935-6666) to arrange for testing as indicated. If instructed by Habif to quarantine or isolate, students should notify their instructor as soon as possible by forwarding the email they received from Habif. Any accommodation needs for COVID-related absence not covered in an instructor’s standard course policies should be discussed between the student and instructor.
While on campus, it is imperative that students follow all public health guidelines established to reduce the risk of COVID-19 transmission within our community. The full set of University protocols can be found at here. This includes:
Strongly recommended masking in indoor spaces. Masking remains a valuable tool in the mitigation of COVID-19, particularly in light of new and emerging variants. Students and instructors are encouraged to treat requests to mask with care and consideration, keeping in mind that some individuals may be at a higher risk, caring for others at a higher risk, or feeling less comfortable in a mask-optional environment. Based on monitoring of regional and campus conditions, a mask requirement may be implemented as needed. For current masking policies, see the WashU Together website.
Students with disabilities for whom masked instructors or classmates create a communication barrier are encouraged to contact Disability Resources or talk to their instructor for assistance in determining reasonable adjustments. Adjustments may involve amplification devices, captioning, or clear masks but will not allow for the disregard of mask policies should a requirement be in place.
Maintaining physical distancing as needed. While distancing requirements have been removed for vaccinated students, those who are not fully vaccinated are strongly encouraged, for their own health, to maintain a distance of 6 ft from others in the classroom. If you are not able to be vaccinated or have conditions that may put you at increased risk of failed immunity and classroom activities would bring you in frequent proximity to other students, contact your instructor to discuss alternatives.
Practicing healthy personal hygiene, including frequent hand washing with soap and warm water for at least 20 seconds and/or using hand sanitizer with at least 60% alcohol.
Reporting Sexual Assault and Harassment
If a student discusses or discloses an instance of sexual assault, sex discrimination, sexual harassment, dating violence, domestic violence or stalking, or if a faculty member otherwise observes or becomes aware of such an allegation, the faculty member will keep the information as private as possible, but as a faculty member of Washington University, they are required to immediately report it to the Department Chair or Dean or directly to Ms. Cynthia Copeland, the University’s Associate Title IX Coordinator, at (314) 935-3411, cmcopeland@wustl.edu. Additionally, you can report incidents or complaints to the Office of Student Conduct and Community Standards or by contacting WUPD at (314) 935-5555 or your local law enforcement agency. See: Title IX.
Disability Resources (DR)
WashU supports the right of all enrolled students to an equitable educational opportunity, and strives to create an inclusive learning environment. In the event the physical or online environment results in barriers to the inclusion of a student due to a disability, they should notify the instructor as soon as possible.
Disabled students requiring adjustments to equitably complete expectations in this course should contact WashU’s Disability Resources (DR), and engage in a process for determining and communicating reasonable accommodations. Because accommodations are not applied retroactively, DR recommends initiating requests prior to, or at the beginning of, the academic term to avoid delays in accessing accommodations once classes begin. Once established, responsibility for disability-related accommodations and access is shared by Disability Resources, faculty, and the student. You can contact Disability Resources at (314) 935-5970 or disabilityresources@wustl.edu.
Military Service Leave
Washington University recognizes that students serving in the U.S. Armed Forces and their family members may encounter situations where military service forces them to withdraw from a course of study, sometimes with little notice. Students may contact the Office of Military and Veteran Services at (314) 935-2609 or veterans@wustl.edu and their academic dean for guidance and assistance. See: Veterans.
Preferred Name and Gender Inclusive Pronouns
Washington University in St. Louis recognizes that many students prefer to use names other than their legal ones to identify themselves. In addition, in order to affirm each person’s gender identity and lived experiences, it is important that we ask and check in with others about pronouns. This simple effort can make a profound difference in a person’s experience of safety, respect, and support See: Pronouns Information, Preferred Name.
Emergency Preparedness
Before an emergency, familiarize yourself with the building(s) that you frequent. Know the layout, including exit locations, stairwells and the Emergency Assembly Point (EAP). Review the “Quick Guide for Emergencies” that is found near the door in many classrooms and main lobby areas of buildings for specific emergency information and instructions. For additional Information and EAP maps, visit emergency.wustl.edu. To ensure that you receive emergency notifications, make sure your information and cell phone number is updated in SIS, and/or download the WashU Safe app and enable notifications.
To report an emergency:
- Danforth Campus: (314) 935-5555
- School of Medicine Campus: (314) 362-4357
- North/West/South and Off Campus: 911 then (314) 935-5555
Academic Integrity
Effective learning, teaching and research all depend upon the ability of members of the academic community to trust one another and to trust the integrity of work that is submitted for academic credit or conducted in the wider arena of scholarly research. Such an atmosphere of mutual trust fosters the free exchange of ideas and enables all members of the community to achieve their highest potential.
In all academic work, the ideas and contributions of others must be appropriately acknowledged and work that is presented as original must be, in fact, original. Faculty, students and administrative staff all share the responsibility of ensuring the honesty and fairness of the intellectual environment at Washington University in St. Louis.
Code of Conduct
The purpose of Olin’s Code of Conduct is to clarify expectations about academic and professional behavior. The Code is meant to encourage and clarify appropriate academic, classroom, interpersonal, and extra-curricular etiquette that is expected of each individual by their peers, the faculty, and the institution. It is also intended to help describe the overall environment of excellence and professionalism that members of the Olin community seek to establish and to continually enhance. It is the responsibility of each member of the Olin community to uphold the spirit, as well as the principles, of the Code.
Please refer to the publication Integrity Matters for specific responsibilities, guidelines and procedures regarding academic integrity.
Olin’s Code of Conduct As It Relates to Academic Matters
The following is a summary of the Code as it applies to Academic matters.
It is dishonest and a violation of student academic integrity if you:
- Plagiarize — You commit plagiarism by taking someone else’s ideas, words or other types of product and presenting them as your own. You can avoid plagiarism by using proper methods of documentation and acknowledgement.
- Cheat on an examination — You must not receive or provide any unauthorized assistance on an examination. During an examination you may use only material authorized by the faculty.
- Copy or collaborate on assignments without permission — It is dishonest to collaborate with others when completing graded assignments or tests, performing laboratory experiments, writing and/or documenting computer programs, writing papers or reports, and completing problem sets (unless expressly discussed in class).
- Fabricate or falsify data or records — It is dishonest to fabricate or falsify data in laboratory experiments, research papers, reports, or other circumstances; fabricate source material in a bibliography or “works cited” list; or provide false information on a resume or other document in connection with academic efforts. It is also dishonest to take data developed by someone else and present them as your own.
- Engage in other forms of deceit or dishonesty that violate the spirit of the Code.
If you have any questions regarding the definition of allowable behavior, it is your responsibility to ask for clarification prior to engaging in the collaboration.
Olin’s Code of Conduct As It Relates to Professional Behavior
ExpectationsProfessional Standards of Conduct Olin students are expected to conduct themselves at all times in a professional manner. Professional behavior includes, but is not limited to, the following:
- Attendance: Students are expected to attend each class session. Students who must miss a session for any reason should make every effort to notify the instructor prior to the class meeting. Students should never register for courses scheduled in conflict with one another.
- Punctuality: Students are expected to arrive and be seated prior to the start of each class session. They should display their name cards in all classes at all times.
- Behavior: Classroom interaction will be conducted in a spirited manner but always while displaying professional courtesy and personal respect.
- Preparation: Students are expected to complete the readings, case preparations and other assignments prior to each class session and be prepared to actively participate in class discussion.
- Distractions:
- Exiting and Entering: Students are expected to remain in the classroom for the duration of the class session unless an urgent need arises or prior arrangements have been made with the professor.
- Laptop, PDA, and Other Electronic Device Usage: Students are expected to not use laptops, PDAs, and other electronic devices in classrooms unless with the instructor’s consent and for activities directly related to the class session. Accessing email or the Internet during class is not permitted as they can be distracting for peers and faculty.
- Cellular Phone and Pager Usage: Students are expected to keep their mobile phones and pagers turned off or have them set on silent/vibrate during class. Answering phones or pagers while class is in session is not permitted.
- Other distractions: Those identified by individual instructors, such as eating in the classroom.
Resources for Students
Confidential Resources for Instances of Sexual Assault, Sex Discrimination, Sexual Harassment, Dating Violence, Domestic Violence, or Stalking
The University is committed to offering reasonable academic accommodations (e.g. a no-contact order, course changes) to students who are victims of relationship or sexual violence, regardless of whether they seek criminal or disciplinary action. If a student needs to explore options for medical care, protections, or reporting, or would like to receive individual counseling services, there are free, confidential support resources and professional counseling services available through the Relationship and Sexual Violence Prevention (RSVP) Center. If you need to request such accommodations, please contact RSVP to schedule an appointment with a confidential and licensed counselor. Although information shared with counselors is confidential, requests for accommodations will be coordinated with the appropriate University administrators and faculty. The RSVP Center is located in Seigle Hall, Suite 435, and can be reached at rsvpcenter@wustl.edu or (314) 935-3445. For after-hours emergency response services, call (314) 935-6666 or (314) 935-5555 and ask to speak with an RSVP Counselor on call. See: RSVP Center.
Bias Reporting
The University has a process through which students, faculty, staff, and community members who have experienced or witnessed incidents of bias, prejudice, or discrimination against a student can report their experiences to the University’s Bias Report and Support System (BRSS) team. See: BRSS.
Mental Health Services
Mental Health Services’ professional staff members work with students to resolve personal and interpersonal difficulties, many of which can affect a student’s academic experience. These include conflicts with or worry about friends or family, concerns about eating or drinking patterns, and feelings of anxiety, depression, and thoughts of suicide. See: Mental Health Services.
The Division of Student Affairs also offers a telehealth program to students called TimelyCare. While students are encouraged to visit the Habif Health and Wellness Center during business hours, this additional service also provides after-hours access to medical care and 24/7 access to mental telehealth care across the United States, with no cost at the time of your visit. Students who pay the Health and Wellness fee are eligible for this service.
Additionally, see the mental health services offered through the RSVP Center listed above.
WashU Cares
WashU Cares, within the Health and Wellness Unit, provides resources to all students on the Danforth Campus who may be having a hard time. WashU Cares is committed to helping create a culture of caring. Through proactive, collaborative, and systemic approaches, WashU Cares works with students to identify interventions, resources, and supports that allow them to be successful. If there is a concern about the physical or mental well-being of a student, please file a report on the WashU Cares website. See: WashU Cares.
The Writing Center
The Writing Center offers free writing support to all Washington University undergraduate and graduate students. Staff members will work with students on any kind of writing project, including essays, writing assignments, personal statements, theses, and dissertations. They can help at any stage of the process, including brainstorming, developing and clarifying an argument, organizing evidence, or improving style. Instead of simply editing or proofreading papers, the tutors will ask questions and have a conversation with the writer about their ideas and reasoning, allowing for a higher order revision of the work. They will also spend some time looking at sentence level patterns to teach students to edit their own work. The Center is located in Mallinckrodt and open Sunday through Thursday from 11:00 am to 9:00 pm and Friday from 11:00 am to 5:00 pm. Students are seen primarily by appointment, but walk-ins will be accepted as the schedule allows. Both in-person and online appointments are available. To make an appointment, go to writingcenter.wustl.edu. Email: writingcenter@wustl.edu.
The Learning Center
The Learning Center provides support programs, including course-specific mentoring and academic skills coaching (study and test-taking strategies, time management, etc.), that enhance undergraduate students’ academic progress. Contact them at learningcenter@wustl.edu or visit ctl.wustl.edu/learningcenter to find out what support they may offer for your classes.
Center for Diversity and Inclusion (CDI)
The Center for Diversity and Inclusion (CDI) supports and advocates for undergraduate, graduate, and professional school students from underrepresented and/or marginalized populations, collaborates with campus and community partners, and promotes dialogue and social change to cultivate and foster a supportive campus climate for students of all backgrounds, cultures, and identities. See: https://diversityinclusion.wustl.edu.