University of Chicago

Course Outline
(provisional)

TOPICS IN FINANCE
PP 344


Spring 2010
Tuesdays, 3 to 6 PM
Room 140C, 1155 East 60th Street



Raaj Sah
Room 141
email: sah@uchicago.edu
Phone: 773-702-0085
Fax: 815-642-0992

2010 Spring, PP 344, page 2 of 6

OVERVIEW

This course is at a level higher than typical master's-level introductory
courses on finance. Its emphasis is on applications in some key areas of
finance. Among the areas are:

Bonds of various kinds, their analysis and valuation, ratings, issuance
and refunding. Bond securitizations of different kinds. Bond
derivatives and related matters. An understanding of all of these is
central to the functioning of municipal, local, and state authorities, of
large nonprofits, and of various other entities.

Investment management. Theory, practice, and past experience.
Special considerations that arise in the context of public retirement
funds, endowments, and similar entities.

Efficiencies and inefficiencies of markets. A summary of the vast
literature on this topic. What this literature and the global historical
experience means for the regulations of financial markets.

The main components of this course are: (i) class discussion of readings and
cases, (ii) a project report to be submitted on a topics of the students choice,
and (iii) a class presentation of the project.

COURSE MATERIAL

A quick source for financial terminology and concepts is:

Newman, Peter et al., The New Palgrave Dictionary of Money and Finance,
Volumes 1 to 3, MacMillan, 1992.

Course material is drawn from a variety of sources, including the books
noted below. Additional material might be added. I have requested the
Regenstein Library to place on reserve the books listed below. The cases and
other materials published by Harvard Business School (HBS) can be
downloaded from the website of the HBS Press. Additional materials are
available from me on the topics listed later, and also on other topics.

2010 Spring, PP 344, page 3 of 6

Bruner, R. F., Case studies in finance, 6th edition, McGraw-Hill/Irwin,

2009. (Bruner)

Constantinides, G., Harris, M, and Stulz, R. M., Handbook of the Economics
of Finance, Volume 1B, North-Holland, 2003. (Handbook-Finance)

Fabozzi, F. J ., Bond markets, analysis and strategies, 7th edition, Prentice
Hall, 2009. (Fabozzi)

Friedman, B. M., et al., Handbook of monetary economics, Volume I,
Elsevier, 1990. (Handbook-Monetary)

Hull, J ohn C., Fundamentals of Futures and Options Markets, 6th edition,
Prentice Hall, 2007. (Hull-Fundamentals)

Hull, J ohn C., Options, Futures, and Other Derivative Securities, 7th
edition, Prentice Hall, 2008. (Hull)

Ingersoll, J . E., Theory of financial decision making, Rowman and
Littlefield, 1987. (Ingersoll)

Mason, S. P., et al., Cases in financial engineering, Prentice Hall, 1995.
(Mason)

Ross, S. A., et al., Corporate finance, 8th edition, McGraw-Hill, 2006.
(Ross)

Sharpe, William F., Gordon J . Alexander and J effrey V. Bailey, Investments,
6th edition, Prentice-Hall, 1999. (Sharpe)

Taylor, J . B., and Woodford, M., Handbook of Macroeconomics, Volume
1C, North-Holland, 1999. (Handbook-Macro)

TOPICS

Not all of the materials listed in this outline can typically be covered within
a quarter. The choices of some of the materials will depend on the
availability of time and on the students areas of interest.

1. Fixed income basics.

2010 Spring, PP 344, page 4 of 6

Reading: The term structure of interest rates, by Robert Shiller. In
Handbook-Monetary.

Reading: The U. S. debt market and the structure of interest rates. HBS.

Reading: Interest rates, market pricing, and compounding. HBS.

Reading: Note on bond valuation and returns. HBS.

Reading: Note on duration and convexity. HBS.

Case: Cougars. HBS. Note that there is an addendum to this case.

2. Fixed income applications, municipal securities.

Reading: Interest rate derivatives. HBS.

Exercises: Exercises 1 and 2. In Mason, pp. 549-550.

Reading: Municipal securities. In Fabozzi, Chapter 8.

Case: Fidelity investments: Spartan Florida Municipal Fund. HBS.

Case: Arbitrage in the government bond market. HBS.

Case: State of Connecticut municipal swap. HBS.

Reading: Interest rate options. In Hull-Fundamentals, Chapter 18

Readings: Interest rate derivatives. In Hull, Chapters 26 and 27.

3. Mortgage-backed securities, other securitization, other matters.

Reading: Bond ratings. HBS.

Reading: A note on the U. S. residential mortgage market. HBS.

Reading: Mortgage pass-through securities. In Fabozzi, Chapter 11.

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Case: American Express TRS charge-card receivables. HBS.

4. Investments: Valuation, management and evaluation.

Reading: Sharpe, Chapters 23 and 24.

Reading: Diversification, the capital asset pricing model, and the cost of
capital. HBS.

Case: The Vanderbilt University Endowment. HBS.

Case: Warren E. Buffet. In Bruner.

Case: Social investing at the J essie Smith Noyes Foundation. HBS.

Case: J KJ Pension Funds. HBS.

5. Market efficiencies and inefficiencies.

Reading: Corporate-financing decisions and efficient capital markets. In
Ross, Chapter 13.

Reading: A survey of behavioral finance, by Nicholas Barberis and Richard
Thaler. In Handbook-Finance.

Reading: Human behavior and the efficiency of the financial system, by
Robert Shiller. In Handbook-Macro.

Reading: Capital market myopia. HBS.

6. Global issues.

(materials to be added later)

OFFICE HOURS

Walk-in office hours are posted on my office door. Please feel free to
contact me for other meetings.

2010 Spring, PP 344, page 6 of 6

GRADING

Grades will be based on individual class participation (40%), class
presentation of the project (30%), and the project report (30%). Typed
project reports, with no constraints on the minimum or maximum length, are
due at the end of the last class.

Statistical information on scores and grades (for example, a histogram of
scores, and the threshold levels for each letter grade) will be distributed.
Please let me know if you need any additional information or feedback.

PREREQUISITES

The prerequisite for this course are PP 323 and PP 324, or the instructors
consent.