MBA642 Financial Derivatives

for S1P 2010

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MBA 642 Financial Derivatives


S1P 2010 DL


Kao, Robert, Ph.D.


Visiting Assistant Professor of Finance

Office Location

Norrinton 2B, Parkville, MO

Office Hours

Online Monday and Wednesday 3-5 PM, Tuesday and Thursday 10-noon, and Sunday 8-9:30 PM, Central Time

Daytime Phone



Class Days


Class Time


Credit Hours



Fundamentals of Derivatives Markets, 1st Edition by Robert McDonald, by Pearson/Prentice Hall

ISBN-10: 0321357175

Textbooks can be purchased through the MBS bookstore

Textbooks can be purchased through the Parkville Bookstore

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Course Description:
MBA 642 Financial Derivatives: This course provides the student with the necessary skills to value and to use options, futures, and related financial contracts. The financial derivatives are one of the constantly chancing and widely used instruments in todays financial markets. This course will provide rigorous fundamental valuation and explore the strategic and tactical dimensions of derivatives. The topics that will be covered include the valuation of futures contracts on stock indices, on commodities and Treasury instruments; the valuation of options; empirical evidence; strategies with respect to these assets; dynamic asset allocation strategies, of which portfolio insurance is an example; swaps; and the use (and misuse) of derivatives in the context of corporate applications. Prerequisites: MBA 615 and MBA 640. (Formerly FI 642)

Educational Philosophy:
The financial derivatives are one of the constantly changing and widely used instruments in today’s financial markets. This course provides the student with the necessary skills to value and to use options, futures, and related financial contracts. In order to help students to better understand the subjects, option pricing exercises and market-related timely topics will be conducted. In the end of the semester, students should be able to analyze derivatives markets and come up with reasonable answers to those problems.

Class Assessment:

Individual Assignment:

Homework problems are assigned for every week. Students are urged to work on those problems. I will collect all assignments on the due dates during the session. The assignments should be turned in through the Dropbox of eCompanion. Late submissions are not acceptable and will not be graded. Students may discuss the homework assignment with their classmates; however, all written work must be of their own. The assignments will be graded based on your efforts, not totally based on correct answers.

Group Assignment:

A case study will be prepared by a pre-designated group of 2 or 3 students depending on the size of the class. Each group should present a background on the topic dealt in the course, answer all questions relevant to the case, including questions from other groups, and furnish a written report. The total amount of work involved in a case presentation should be divided as equally as possible among the members in the group. The instructor will evaluate the performances in each group’s case analysis. Other groups will also view and comment the results of the case.


There will be 2 Tests and a comprehensive final exam during the semester. The exams will consist of multiple-choice problems and application questions. Students are expected to take examinations at the scheduled times. There will be no make-up exams. Remedies are possible, but only in documented, urgent, and compelling circumstances, and only if the instructor has been informed in advance. 


Students need to select one topic related to the financial derivatives subject. The project/paper proposal is due on week 5. Students will receive the comments before preceding the paper. The final paper will be due on week 8.


Grades will be based on completion of the required assignments as well as exams. Grades will be awarded according to the following schedule:

            Test 1                                                            100 Points

            Test 2                                                            100 Points
            Final Exam                                                     200 Points

            Homework (7 HW, each 20 pts)                       140 points

            Project/Paper                                                 150 points

            Discussion Questions (Best 6, Each 10 pts.)        60 points


            Total                                                              750 points


675 or above                          A
600-674                                 B

525-599                                 C

450-524                                 D

Below 450                               F

All final exams will be comprehensive and will need to be finished within the time constraint.

Late Submission of Course Materials:

Please submit your work on the date indicated in the assignment section. If you are not going to meet the due date, contact me before the due date to make any arrangements for a late paper. Any work submitted late without prior coordination with me will lose 10 percentage points for each day the work is late.

Excused absences can be granted by the instructor for medical reasons, school sponsored activities, and employment-related demands including temporary duty. The student is responsible for completing all missed work. Absences in excess 2 weeks in a term will be reported to the Dean for appropriate action. Any student fails to attend class for two consecutive weeks, without an approved excuse, will be institutionally withdrawn (unofficially withdrawn) and notified by mail that an "F" will be recorded.

Students are expected to spend a substantial amount of time online and offline each week including but not limited to responding to the weekly discussions, sending/receiving email, reading and viewing online lectures, completing online homework and tests, and conducting research over the internet.  A rule of thumb is that you should spend approximately 4-5 hours per week online reviewing course content, engage in group work and discussion, spend an additional 2-3 hours per week on readings, prepare assignments, and/or complete paper or examinations.

Classroom Rules of Conduct:
The Website will be monitored for each student’s class activities every week.  This will be served as the class participation for the student.  

Course Topic/Dates/Assignments:


Major Topics*


Week 1 (Jan. 11-15)


Introduction to Mechanics of Derivatives Markets

Online Discussion Questions (posted on the web)

Readings: Ch. 1 & 2


Concept Questions: (posted on the web)


Problems-Solving: 1.5, 1.8, 1.9, 2.1, 2.4, 2.13, 2.14


(Questions and Problems are due on Jan.17)

Week 2 (Jan. 18-22)

Insurance, Collars, and Other Option Strategies

Online Discussion Questions (posted on the web)


Reading: Ch. 3   


Concept Questions: (posted on the web)


Problems-Solving: 3.1, 3.2, 3.5, 3.7, 3.10


(Questions and Problems are due on Jan. 24)

Week 3 (Jan. 25-29)

Derivatives in Risk Management

Online Discussion Questions (posted on the web)

Test 1 (Ch.1-4)

Reading: Ch. 4

Ch. 5 & 6


Concept Questions: (posted on the web)


Problems-Solving: 4.1, 4.3, 4.5, 4.6


(Questions and Problems are due on Jan. 31; Test 1 is due on Feb. 3)

Week 4 (Feb. 1-5)

Financial Forwards, Futures, and Applications

Online Discussion Questions (posted on the web)



Readings: Ch. 5 & 6

Concept Questions: (posted on the web)


Problems-Solving: 5.2, 5.3, 5.5, 6.1, 6.3, 6.5, 6.7


(Questions and Problems are due on Feb. 7)

Week 5 (Feb. 8-12)

Interest Rate Forwards and Futures




Online Discussion Questions (posted on the web)


Reading: Ch. 7



Concept Questions: (posted on the web)


Problems-Solving: 7.2, 7.5, 7.9, 7.11


(Questions and Problems are due on Feb. 14)


Project/paper proposal is due on Feb. 14.

Week 6 (Feb. 15-19)



Online Discussion Questions (posted on the web)


Test 2 (Ch.5-8)

Reading: Ch.8


Concept Questions: (posted on the web)


Problems-Solving: 8.1, 8.2, 8.4, 8.6


(Questions and Problems are due Feb. 21; Test 2 is due on Feb. 24)

Week 7 (Feb. 22-26)

Put-Call Parity and Other Option Relationships

Online Discussion Questions (posted on the web)


Reading: Ch. 9


Concept Questions: (posted on the web)


Problems-Solving: 9.1, 9.3, 9.4, 9.7


(Questions and Problems are due on Feb. 28)

Week 8 (Mar. 1-5)


Final Exam: Comprehensive (Ch. 1-9)

Project/Paper and Final Exam are due on Mar. 5 

*Note: Instructor reserves the right to change the subjects due to the progress of the class and unforeseen circumstances.


Academic Honesty:
As a learning community, the University upholds the highest standards of academic integrity in all its academic activities, by faculty, staff, administrators and students. Academic integrity involves much more than respecting intellectual property rights. It lies at the heart of learning, creativity, and the core values of the University. Those who learn, teach, write, publish, present, or exhibit creative works are advised to familiarize themselves with the requirements of academic integrity and make every effort to avoid possible offenses against it, knowingly or unknowingly. Park University 2009-2010 Graduate Catalog Page 31


Plagiarism involves the appropriation of another person's ideas, interpretation, words (even a few), data, statements, illustration or creative work and their presentation as one's own. An offense against plagiarism constitutes a serious academic misconduct.  Although offenses against academic integrity can manifest themselves in various ways, the most common forms of offenses are plagiarism and cheating. Plagiarism goes beyond the copying of an entire article. It may include, but is not limited to: copying a section of an article or a chapter from a book, reproduction of an art work, illustration, cartoon, photograph and the like and passing them off as one's own. Copying from the Internet is no less serious an offense than copying from a book or printed article, even when the material is not copyrighted.

Plagiarism also includes borrowing ideas and phrases from, or paraphrasing, someone else's work, published or unpublished, without acknowledging and documenting the source. Acknowledging and documenting the source of an idea or phrase, at the point where it is utilized, is necessary even when the idea or phrase is taken from a speech or conversation with another person.

Park University 2009-2010 Graduate Catalog Page 31-32

Attendance Policy:

Professors are required to maintain attendance records and report absences. Excused absences can be granted by the instructor, for medical reasons, school sponsored activities, and employment-related demands, including temporary duty. Students are responsible for any missed work. Absences for two successive weeks, without approved excuse, will be reported to the Director of the individual graduate program, or to the Executive Director for the Graduate School, for appropriate action. Students with such a record of absences, without an approved excuse, may be administratively withdrawn from the class and notified that an "F" will be recorded, unless the student initiates official withdrawal from the class(es).Park University 2009-2010 Graduate Catalog Page 35

Disability Guidelines:
Park University is committed to meeting the needs of all students that meet the criteria for special assistance. These guidelines are designed to supply directions to students concerning the information necessary to accomplish this goal. It is Park University's policy to comply fully with federal and state law, including Section 504 of the Rehabilitation Act of 1973 and the Americans with Disabilities Act of 1990, regarding students with disabilities. In the case of any inconsistency between these guidelines and federal and/or state law, the provisions of the law will apply. Additional information concerning Park University's policies and procedures related to disability can be found on the Park University web page: .


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Last Updated:12/30/2009 6:14:51 PM