FIN 4486 – Financial Risk Management and Financial Engineering

Tuesday 5:00 – 7:40 PM, (Room: MARC 145)

January 13, 2015 – April 21, 2015

COURSE SYLLABUS

Office: RB 208B, University Park E-mail: VLNGUYEN@fiu.edu

Office Phone: 305-348-2680 Fax: (305) 348-4245
Finance Dept. Phone: 305-348-2680
Office Hours: By appointment scheduled via email

COURSE DESCRIPTION

Risk is a fundamental feature of any business decision. A financial manager confronts

risks associated with the underlying business and financial risks related to fluctuations
in interest rates, exchange rates, stock, and commodity prices. Uncertainty in financial
factors influences the future performance of a company; interest rate risk can affect the
future value of a firm’s assets and liabilities; exchange rate fluctuations affect the future
costs of imports and dollar value of export revenues. By managing financial risks, a
company can focus on its main activities and operations, rather than on forecasting
interest rates, exchange rates, and future commodity prices.

As we will learn in this course, financial risks can be managed using derivative
securities, so named because the future value of the security is derived from another
asset, a commodity, or an economic variable. Derivatives allow investors and
corporations to hedge financial risks.

In this course, we will survey the types of derivative securities used in financial risk
management. For each type of derivative, students will learn the contractual
specification, the payoff structure, the mechanics of trading, methods of valuation,
hedging techniques, and trading strategies. Emphasis will be placed on actual trading of
derivatives and empirical research.
COURSE PREREQUISITES

FIN 3424 Intermediate Finance

FIN 4502 Securities Analysis

TEXTBOOK

Futures, Options, and Swaps

Robert W. Kolb and James A. Overdahl
Blackwell Publishing, 2007, 5th Edition

ISBN: 978-1-4051-5049-1

REQUIRED MATERIAL

Financial or Scientific Calculator with exponential and natural logarithm keys

UNDERGRADUATE POLICIES & PROCEDURES

The Undergraduate Policies and Procedures Manual outlines and explains the policies
and procedures governing undergraduate study at FIU. The policies include those
concerning: the Undergraduate Program, University and Department Admission Criteria,
College Level Academic Skills (CLAST), Academic Advising, General Academic
Policies, Award of Degrees and Commencement Exercises, Educational Support
Services and Undergraduate Administration. A keyword index links the Undergraduate,
Graduate and Academic Affairs Policies and Procedures Manuals.

The Standards of Student Conduct summarize the position of the University concerning
ethics and honesty.

DISABILITY SERVICES

If a student has a disability and needs assistance, please notify the Instructor and/or
contact the Disability Resource Center for Students to make arrangements for the
appropriate modification and/or assistance.
RELIGIOUS HOLIDAYS

Any student may request to be excused from a scheduled exam to observe a religious
holy day of their faith. The student must notify the Instructor and arrange to take the
exam in advance of the regularly scheduled exam date.

ACADEMIC INTEGRITY

Statement of Understanding between Professor and Student

Student Code of Academic Integrity

Every student must respect the right of all to have an equitable opportunity to learn and
honestly demonstrate the quality of their learning. Therefore, all students must adhere
to a standard of academic conduct, demonstrating respect for themselves, their fellow
students, and the educational mission of the University. As a student in the College of
Business taking this class:

I will not represent someone else's work as my own

I will not cheat, nor will I aid in another's cheating
I will be honest in my academic endeavors

I understand that if I am found responsible for academic misconduct, I will be

subject to the academic misconduct procedures and sanctions as outlined in the
Student Handbook

Failure to adhere to the guidelines stated above may result in one of the following:

Expulsion: Permanent separation of the student from the University, preventing

readmission to the institution. This sanction shall be recorded on the student's
transcript.

Suspension: Temporary separation of the student from the University for a

specific period of time.

By taking this online course I promise to adhere to FIU's Student Code of Academic
Integrity. For details on the policy and procedure go to ACADEMIC MISCONDUCT.
GRADING

9 Think or Swim
27%
Presentations
Think or Swim Performance 5%
Research Presentation 9%
Research Paper 9%
Midterm Exam 25%
Final Exam 25%

Your letter grade is determined by applying the scale shown below to your weighted
average score.

Letter Letter Letter

Range Range Range
Grade Grade Grade

A 95 -100 C+ 74 - 77 D+ 62 - 65

A- 90 - 94 C 70 - 73 D 58 - 61

B+ 86 - 89 C- 66 - 69 D- 54 - 57

B 82 - 85 F 0 - 53

B- 78 - 81

THINK OR SWIM PRESENTATIONS

Presentation Requirements:
 Portfolio value
 Description of the trades (futures or options, delivery date, expiration date, strike
prices)
 Explanation of trades (reason for buying/selling)
 Did you close the position? Explain why or why not
 News related to the trade (WSJ, Squawk Box, Yahoo! Finance)
 Best case scenario forecasts (how do you expect your trades to perform)
 Duration of presentation from 8-10 minutes
 Email me the presentation before noon on the day of the presentation
 Print a copy of the presentation to submit in class
THINK OR SWIM PERFORMANCE
Teams are ranked at the end of the semester by portfolio values.
 First place team receives 6 out of a total of 5 points
 Second place team receives 5 points
 Third place team receives 4 points
 Fourth place team receives 3 points
 Fifth place team receives 2 points
 Sixth place team receives 1 point
 Seventh place team receives no points
 1 point is deducted from the last place team (-1 point)

RESEARCH PRESENTATION & PAPER

Presentation Requirements:
 Abstract
 Introduction
 Data
 Results (make sure you present the tables and graphs to support the results)
 Conclusion
 Discussion of relevance to the textbook chapter
 Future research ideas (one from each member of the team)
 Duration of presentation from 60-75 minutes
 Email me the presentation before noon on the day of the presentation
 Print a copy of the presentation to submit in class
Paper Requirements:
 Length: 10-12 double-spaced pages, not including graphs, tables and citations.
 Content: abstract, introduction, data, results, conclusion, relevance to chapter,
and future research ideas
 If I see any sentences or paragraphs copied/plagiarized, the entire team will
receive a zero for the entire project.
 Email me the paper before noon on the day of the presentation
 Print a copy of the paper to submit in class

EXAMS
The exams are in multiple choice and/or essay format. You will have approximately 2
hours and 30 minutes to complete the exam. No incomplete grades or make-up
exams will be given. In cases of medical or catastrophic emergencies, the student
needs to show documentation before any exceptions are considered BEFORE the
exam date.
COURSE CALENDAR

Any changes will be announced on Blackboard or in the classroom.

DATE TOPIC READING

Syllabus
Introduction to Futures and Options
JAN 13 Think or Swim (ToS) CH 1
MBTI Results
Futures Markets
JAN 20 CH 2
ToS Presentations
Using Futures Markets
JAN 27 Coval and Shumway (2001) CH 4
ToS Presentations
Security Futures Products
FEB 3 Kurov and Lasser (2004) CH 7
ToS Presentations
Interest Rate Futures
FEB 10 Kawaller and Koch (1984) CH 5
ToS Presentations
Roll (1988)
FEB 17
ToS Presentations

FEB 24 Review for Exam 1

MAR 3 Exam 1

MAR 10 SPRING BREAK – NO CLASS

Options Market
MAR 17 Mayhew and Mihow (2004) CH 10
ToS Presentations
Options Payoffs and Strategies
MAR 24 Coval and Shumway (2001) CH 11
ToS Presentations
European Option Pricing
MAR 31 Black and Scholes (1972) CH 13
ToS Presentations
Option Sensitivities
APR 7 Bollen and Whaley (2004) CH 14
ToS Presentations

APR 14 Review for Exam 2

APR 21 Exam 2