Department of Economics

ECON UN 3025
Section 001 and 002
ECONUN3025_FT18_S001/S002
Fall 2018
Columbia University
ECON UN 3025:
Financial Economics
COURSE AND INSTRUCTOR INFORMATION

Faculty: Tamrat W. Gashaw, Ph.D.

Email address: tg2681@columbia.edu
Office : International Affairs Building 1001A
Office hours: M - R: 1:20 – 2:20 P.M. [For both Sections]
Course Web site: https://courseworks.columbia.edu/
Class time and room: MW: 11:40 A.M. -12:55 P.M.; Ren Kraft Center [SECTION 001]
Class time and room: TR: 02:40 P.M. - 03:55 P.M.; Ren Kraft Center [SECTION 002]

TEACHING ASSISTANTS INFORMATION:

Since I am teaching two sections of the same course, I decided to pool TAs for both sections
instead of assigning a specific TA to a single section. That means you are free to go to whichever
TA is available for help. Here are the details of course TAs:

TA’s Name: Mai Li

Email address: ml3689@columbia.edu
Office hours: M: 7:30 – 8:30 P.M.; Suite 270B of International Affairs Building
Recitation: M: 6:00 – 7:15 P.M.; Lehman Library Group Study Area

TA’s Name: Hyoseok Kim

Email address: hk2562@columbia.edu
Office hours: F: 12:00 – 1:00 P.M.; Lehman Library Group Study Area
Recitation: F: 1:00 – 2:15 P.M.; 402 International Affairs Building

TA’s Name: Chun-Che Chi

Email address: cc3729@columbia.edu
Office hours: W: 4:20 – 5:20 P.M.; IAB Lehman Library Group Study Area
Recitation: W: 3:00 – 4:15 P.M.; 402 International Affairs Building

TA’s Name: Iain Bamford

Email address: iab2125@columbia.edu
Office hours: M: 6:00 – 7:00 P.M.; IAB Lehman Library Group Study Area

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Recitation: M: 5:00 - 6:00 PM; 402 International Affairs Building

TA’s Name: Lizi Yu

Email address: ly2423@columbia.edu
Office hours: T: 12:30 – 1:30 P.M.; Lehman Library Group Study Area
Recitation: T: 5:00 - 6:15 P.M.; 402 International Affairs Building

TA’s Name: Ojaswee Rajbhandary

Email address: or2215@columbia.edu
Office hours: W: 7:00 – 8:00 P.M.; IAB Lehman Library Group Study Area
Recitation: T: 1:00 – 2:15 P.M.; 402 International Affairs Building

COURSE DESCRIPTION:
This course (ECON UN 3025) is a rigorous introduction to the principles of financial assets
allocations into different investment ventures, financial asset valuation, and the structure and
functions of financial markets and institutions. It introduces students to the role of financial
markets, particularly price determination in these markets, using the tools of modern financial
theory. This course covers the tools for risk-return analysis, portfolio theory and analysis, the
Capital Asset Pricing Model (CAPM), the Efficient Markets Hypothesis (EMH), Stock and Bond
valuations, Interest Rates, Derivatives, and International diversification.

PREREQUISITS: SUGGESTED TOPICS TO REVISE

ECON UN3211: INTERMEDIATE MICROECONOMICS.

 The determination of the relative prices
 The allocation of (financial) resources
 Constrained and unconstrained optimization
 Theory of Supply and Demand
 Types of Market Structures (i.e., its implication for EMH)
 Theory of Consumer/Investor Behavior
 Theory of (Expected) Utility
 Decision under uncertainty

ECON UN3213: INTERMEDIATE MACROECONOMICS

 Determination of output, employment, inflation and interest rates.
 Economic growth and business cycles,
 Monetary and fiscal policy,
 Consumption, savings and national income accounting,
 The role and importance of the Financial System (Financial Institutions + Financial
Markets)
 Financial regulation, risk, and uncertainty
 Country-wide risk (Inflation, Currency, Policy, etc…)

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  Open-economy models (i.e., its implication for international portfolio diversification)

STAT UN1201: CALCULUS-BASED INTRODUCTION TO STATISTICS.

 Random variables and probability density functions/distributions, (pdf, cdf, etc.),
 Measures of Central Tendency and Dispersion (Expected value/mean, variance,
correlation, conditional distribution, conditional mean and conditional variance)
 Law of iterated expectations, (i.e., normal-, chi-square-, F- and t-distributions),
 Simple Linear Regression, (parameter estimation, properties of estimators)
 Hypothesis testing, p-value, confidence intervals,
 Law of large numbers and central limit theorem

COURSE LEARNING OUTCOMES

After studying this course, you will be able to:

 Goal 1: [THEORY] Understand basic Principles of Modern Finance.

o Explain the roles and importance of the Financial System (i.e., Financial Markets
and Institutions) in the modern economy.
o Demonstrate understanding of and ability to apply modern theories of asset
price/return determination and financial portfolios.
o Develop a basic understanding of futures and options markets and their
relationship to price determination in equity and debt markets. Be able to
synthesize and apply this understanding in taking financial positions.
o Articulate and show mathematically arbitrage pricing relationships in Modern
Finance theories of equities, bonds, futures, and options.

 Goal 2: [APPLICATION] Gain practical investment and portfolio management

skills by using Stock Trak investment simulation software.
o Demonstrate ability to identify securities, analyze their historical records, make
investment decisions (i.e. financial resource allocation), and construct your own
investment portfolio to manage.
o Clearly communicate and present financial analysis and strategies in written form
articulating your investment decisions in constructing a portfolio, trading, taking
different positions, and managing it.

REQUIRED TEXTBOOK AND OPTIONAL READINGS

1. Textbooks
 Zvi Bodie, Alex Kane, and Alan J. Marcus. 2014. Investments. 10th Edition. New York,
NY: McGraw-Hill Education. (Main Textbook)
 Simon Benninga. 2014. Financial Modeling. 4th Edition. Cambridge, MA: MIT Press.
(Recommended)
 Cuthbertson, Keith and Nitzsche, Dirk. 2001. Quantitative Financial Economics: Stocks,
Bonds and Foreign Exchange. 2nd Edition. New York, NY: John Wiley and Sons.
(Recommended)

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 2. All students will have a Stock Trak account— www.stocktrak.com —which allows
online trading with “fake money” in real-world financial markets in real time.
3. Other readings will be linked to in the course outline below, handed out, or posted to
https://courseworks.columbia.edu/

QUIZ, HOMEWORK ASSIGNMENTS AND EXAMINATIONS:

Your grade will be based on quiz, homework assignments, portfolio simulation assignment, and
examinations. There will be only one quiz towards the 3-4 weeks to help you test yourself and
two examinations (one midterm exam and one comprehensive final examination). The midterm
exam account for 20% of the final course grade, and the final exam will be worth 35%. The dates
of midterm exams will be on 10/17/2018 and 10/18/2018 for section 001 and 002, respectively
and if there is a change it will be announced in class at least one week in advance. The final
exams are comprehensive and will be held on Monday, December 17, 2018: 9:00 A.M. – 12:00
P.M AND Thursday, December 20, 2018: 1:10 P.M. – 4:00 P.M. for Section 001 and 002,
respectively.

Homework assignments will be worth 25% of your grade. I plan to post the homework
assignments for each and every chapter/topic on https://courseworks.columbia.edu/ online
course management systems and make announcements in class. Sometimes I may combine 2-3
chapters in one homework assignments if the content is related. You are responsible for
completing the assignments before the due date. You may be able to work on that assignment as
a group of three but you are expected to submit your homework individually. That requires you
to write the answer for homework questions in your own words and ways. Do not turn in the
exact same answer for your homework. If you do not complete the assignment before the due
date and submit your work on time, you will not earn any credit for that particular homework. If
you miss the assignment, you will earn 0 points for that assignment. No late homework will be
accepted. At the end of the semester, I will convert your total score on all assignments out of
25%.

STOCK TRAK ASSIGNMENT:

This simulation assignment will be 15% of your total grade. STOCK TRAK is an almost real-
time investment-portfolio simulation program available and operated by STOCK TRAK.
Suppose that an alum of Columbia University has just donated a $1,000,000 (i.e., each student
will have a $1 million pretend cash balance with which to trade online) to the Department of
Economics. In addition, congratulations, you have been hired as a portfolio manager to manage
this fund. Although, the initial fund is pretend cash, this simulation provides you actual prices of
most securities in most public markets in different countries. Upon hiring, the department comes
up with the following specific trading rules and guidelines. These are:
 The objective of this fund is to outperform the standard benchmark, S&P 500 (i.e., first
benchmark) as well as a randomly assembled portfolio that we will be creating in class
(i.e., second benchmark).
 This is an aggressive fund that requires an active (i.e., not passive) management
strategy.
 As the portfolio manager of this fund, you must select an investment strategy that you

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 expect to outperform the S&P 500.
 The department (i.e., the owner of this fund) believes that for portfolio managers to earn
their high salaries, they are required to engage in active trading. This means that you
must perform a minimum of 100 trades and a maximum of 400 trades. (A trade consists
of opening or closing a position—so, buying 100 shares in AAPL would be 1 trade, and
selling those shares would be another trade.)
 The fund will be created on September 14, 2018 (Friday) and the fund will
automatically be liquidated on December 21, 2018 (the last day of final exams) so you
only have a few weeks to earn your millions. However, you need to close your portfolio
by December 14, 2018 (the first day of final exams) or your final grade on this
assignment will be based on your position as of this date.
 Your main grade on this project will be based on the quality of your analysis, not on
your total return per se.
 However, since most portfolio managers are compensated based on their performance,
the college is offering the following compensation arrangement. If you accept this
arrangement, then you are entitled to the following bonus points
- Finishing in the top 10 places 1% added to your portfolio project score
- Out-perform the S&P 500 1% added to your portfolio project score
- Out-perform the 2nd benchmark 1% added to your portfolio project score
- Under-perform the S&P 500 1% deducted from your portfolio project
- Under-perform the 2nd Benchmark 1% deducted from your portfolio project
- Finishing in the bottom 10 places 1% deduction from your portfolio project
 As manager of the fund, you can buy or short stocks, bonds, options or futures. There
will be 5 required trading exercises for the course; each will use up several of your 400
trades. At the end of the term, you are required to write your performance report about
the investment activities that you have been engaged in since September 14, 2018.
These are:
 Build an equity portfolio of at least 20 stocks (4% of final grade)
 Short some stocks (2%)
 Build a bond portfolio (2%)
 Take multiple positions in futures (2%)
 Take multiple positions in options (2%)
 Portfolio performance grade (0 - 3%)

Each student is required to write an investment report that will be due on December 14, 2018. In
this report, make sure to include a rationale for each decision you have made and your reflection
on it.

How do you get started?

In order to register for your Stock Trak account and into the right class, you need to go to:
https://www.stocktrak.com:443/members/registerstudent?className=ECONUN3025-OO2-
FALL2018 and enter ECONUN3025-001 as your class name. You can register online with a
credit card and the fee in the amount of $31.95 will be charged to your credit card. When you
complete the registration, you will be given access information to start your simulation. You
need to register before September 14, 2018 and registration opens on September 7, 2018.

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 SUMMARY OF GRADING WEIGHTS:
Quiz: 5% (will be given on the 3rd or 4th week to help you test yourself)
Stock Trak Assignment: 15%
Midterm Exam: 20%
Homework Assignments: 25%
Final Exam: 35%

COURSE/CLASS POLICY:
There is an attendance policy for the course. I may not take attendance in every class as it is an
upper level class and also due to time constraint, but consistent attendance is strongly
recommended for good performance in this course. Failure to attend class regularly affects your
performance. Attendance and participation are an integral part of the learning process, and
success in this course cannot be achieved by simply reading the main text. I will also present
material in class that will not be found elsewhere.

During each class students are expected to avoid carrying on private conversations, reading
newspapers or working on assignments from other courses. In addition, you are also expected to
turn off your laptops, cell phones, tablets, pagers, and PDAs prior to entering class unless we
need them in class for the purpose of this course as determined by me. You are not allowed to
conduct trading on stock trak while the class is in progress. When I review your portfolio, I can
see when you carried out a particular investment activity and if I see that you make investments
during class time, I will deduct points from your assignment grade. You may be asked to leave
the classroom if these policies are violated or I’ll deduct points from your overall score.

Important! The only email address that should be used for communication is the email address
associated with columbia.edu ID.

Make-up Policy:

Generally, any type of make-up is highly discouraged. Regarding this class, there will not be
make-up for any missed homework and stock trak related activities. For the midterm exam, I
may allow you to take the exam with my other section students in the same week if you miss the
midterm exam based on a legitimate reason supported by acceptable documentations and/or prior
approval from the instructor for your absence on the exam date.

However, as for the final exam, generally the university governs the administration of missed
final exams. Students who cannot take the final exam must petition their school for an
incomplete. If the school grants the incomplete, then the student has the right to take a make- up
exam. That exam will be administered by the school at the start of the next semester.

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If you have three final exams within 24 hours, please let me know as soon as you have that
information and I will try to accommodate you by allowing you to take your exam for this class
with my other section. In sum, make-up examinations are highly discouraged and you are better-
off doing all assignments and exams on time as scheduled.

Statement on Academic Integrity:

As all classes in the University, the Honor Code established by the students of Columbia
University will be effective in this class as well. If any student is found violating academic
integrity, that is cheating, plagiarizing, and committing other academic dishonesty, cannot be
tolerated and actions will be taken by me as well as school Deans will be notified. For details of
student’s honor code see http://bulletin.columbia.edu/general-studies/undergraduates/gs-
honor-pledge/.

Basic Rules for this Course:

1. Always come to class prepared to learn and participate in class

2. Always ask questions when you don’t understand something
3. Always challenge yourself to do your best in this course
4. Always show respect for everyone in the class – classmate, TAs, the professor, and
YOURSELF.
5. Always keep academic honesty and integrity by affirming the honors code.
6. Attempt to attend all recitations and office hours by TAs in order to get additional help.

ODS Accommodations:

If you are a student with a disability and have a DS-certified ‘Accommodation Letter’ please
notify me at least 2 weeks prior to the test dates listed above. If you believe that you might have
a disability that requires accommodation, you should contact Disability Services at 212-854-
2388 and disability@columbia.edu.

For further information and resources on ODS accommodations, please refer to statement online
at http://www.college.columbia.edu/rightsandresponsibilities.

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 PRELIMINARY CLASS SCHEDULE - FINANCIAL ECONOMICS

Month Week Day Date Topics

Introduction to Financial Economics
September 1 M 3-Sep Labor Day (No Class)
T 4-Sep · Welcome, Course Syllabus, Introduction
H 6-Sep · Suggested topics from prerequisites
H 6-Sep · Introduction to Financial Economics (overview)
Fundamentals of Investment
2 T 11-Sep · Why Investing? Theory and The Investment Environment
Required Reading: BKM Chapter 1
Recommended Reading:
 Allen, F. (2001). Do Financial Institutions Matter? The Journal of Finance,
56(4), 1165-1175.
 Cecchetti, S. (2009) Crisis and Responses: The Federal Reserve in the Early
Stages of the Financial Crisis. The Journal of Economic Perspectives, Vol.
23, No. 1 (Winter, 2009), pp. 51-76
H 13-Sep · Places/Arrangements to Invest: Financial (Money + Capital) Markets
Required Reading: BKM Chapter 2
Recommended Reading:
 Chemmanur, T., & Fulghieri, P. (1994). Investment Bank Reputation,
Information Production, and Financial Intermediation. The Journal of Finance,
49(1), 57-79.
 Valdez, Steven (2000). An Introduction To Global Financial Markets (3rd ed.).
Basingstoke, Hampshire: Macmillan Press.
3 T 18-Sep · What to buy? Asset classes and instruments
Required Reading: BKM Chapter 3
Recommended Reading:

T 18-Sep · Market Participants: Investors, Investment Companies, Regulators, ect …

Required Reading: BKM Chapter 4
Recommended Reading:
 Hubbard, R., Koehn, M., Ornstein, S., Van Audenrode, M., & Royer, J.
(2010). Mutual Funds’ Organizational Form and Conflicts of Interest. In The
Mutual Fund Industry: Competition and Investor Welfare (pp. 130-149).
Columbia University Press.
Portfolio Construction
H 20-Sep · Process/steps: Top-down vs Bottom-up
Required Reading: BKM Chapter 5
Recommended Reading:
 Markowitz, Harry M. (1999). "The early history of portfolio theory: 1600–
1960". Financial Analysts Journal. 55 (4).
4 T 25-Sep · Criteria: Mean-Variance/Risk-Return Trade-off
Required Reading: BKM Chapter 5
Recommended Reading:

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  Grechuk, B., Molyboha, A., Zabarankin, M. (2012). Mean-deviation analysis
in the theory of choice, Risk Analysis: An International Journal, 32(8), 1277-
1292.
 Fama, Eugene F. (1968). Risk, Return and Equilibrium: Some Clarifying
Comments. Journal of Finance. vol. 23, No. 1. pp. 29–40.
H 27-Sep · How to invest? Capital Allocation: Modern Portfolio Theory
Required Reading: BKM Chapter 6 and 7
Recommended Reading:
 Lintner, John (1965). "The valuation of risk assets and the selection of risky
investments in stock portfolios and capital budgets". Review of Economics
and Statistics. 47 (1): 13–37.
 Markowitz, H.M. (March 1952). "Portfolio Selection". The Journal of Finance.
7 (1): 77–91.
 Merton, Robert. "An analytic derivation of the efficient portfolio frontier,"
Journal of Financial and Quantitative Analysis 7, September 1972, 1851-
1872.
 Sharpe, William F. (1964). "Capital asset prices: A theory of market
equilibrium under conditions of risk". Journal of Finance. 19 (3): 425–442.
October 5 T 2-Oct · How to invest? Capital Allocation: Index Model
Required Reading: BKM Chapter 8
Recommended Reading:
 Fama, Eugene F.; French, Kenneth R. (1993). "Common Risk Factors in the
Returns on Stocks and Bonds". Journal of Financial Economics. 33 (1): 3–56.
 Fama, Eugene F.; French, Kenneth R. (1992). "The Cross-Section of
Expected Stock Returns". Journal of Finance. 47 (2): 427–465.
 Fama, Eugene F. and Kenneth French (1992). The Cross-Section of
Expected Stock Returns. Journal of Finance, June 1992, 427–466.
Capital Markets
H 4-Oct · Types of Capital Markets and Characteristics
Required Reading: BKM Chapter 2 and 9
Recommended Reading:
 Valdez, Steven (2000). An Introduction To Global Financial Markets (3rd ed.).
Basingstoke, Hampshire: Macmillan Press.
 Edited by Chambers, D. and Dimson E. (2016). Financial Market history:
Reflation on the past for investors today. The CFA Institute Research
Foundation and University of Cambridge.
6 T 9-Oct · Efficient Market Hypothesis
Required Reading: BKM Chapter 11
Recommended Reading:
 Malkiel, Burton G. (1996). A Random Walk Down Wall Street, W. W. Norton,
ISBN 0-393-03888-2
 Malkiel, B. (2003). The Efficient Market Hypothesis and Its Critics. The
Journal of Economic Perspectives, 17(1), 59-82
H 11-Oct · Behavioral Finance (as limitations of EMH)
Required Reading: BKM Chapter 12
Recommended Reading:
 Shefrin, H.; Statman, M. (2000). "Behavioral Portfolio Theory". Journal of
Financial and Quantitative Analysis. 35 (2): 127–151.
 De Brouwer, Ph. (2009). "Maslowian Portfolio Theory: An alternative
formulation of the Behavioural Portfolio Theory". Journal of Asset

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 Management. 9 (6): 359–365.

7 T 16-Oct · Empirical Evidence

Required Reading: BKM Chapter 13
Recommended Reading:
 Sommer, Jeff (28 June 2014). "Are Markets Efficient? Even the Supreme
Court Is Weighing In" – via NYTimes.com.
 Malkiel, Burton G. (1996). A Random Walk Down Wall Street, W. W. Norton,
ISBN 0-393-03888-2
H 18-Oct MID-TERM EXAMINATION

8 T 23-Oct · The Capital Asset Pricing Model

Required Reading: BKM Chapter 9
Recommended Reading:
 Fama, Eugene F; French, Kenneth R (Summer 2004). "The Capital Asset
Pricing Model: Theory and Evidence". Journal of Economic Perspectives. 18
(3): 25–46.
 French, Jordan (2016). "Back to the Future Betas: Empirical Asset Pricing of
US and Southeast Asian Markets". International Journal of Financial Studies.
4 (3): 15.
 French, Jordan (2016). "Estimating Time-Varying Beta Coefficients: An
Empirical Study of US & ASEAN Portfolios". Research in Finance. Research
in Finance. 32: 19.
 Roll, R. (1977). "A Critique of the Asset Pricing Theory's Tests". Journal of
Financial Economics. 4 (2): 129–176.
 Merton, R.C. (1973). "An Intertemporal Capital Asset Pricing Model".
Econometrica. 41 (5): 867–887.
 Breeden, Douglas (September 1979). "An intertemporal asset pricing model
with stochastic consumption and investment opportunities". Journal of
Financial Economics. 7 (3): 265–296.
 De Brouwer, Ph. (2009). "Maslowian Portfolio Theory: An alternative
formulation of the Behavioural Portfolio Theory". Journal of Asset
Management. 9 (6): 359–365.
 Mossin, Jan (1966). "Equilibrium in a Capital Asset Market". Econometrica.
34 (4): 768–783.
 Ross, Stephen A. (1977). The Capital Asset Pricing Model (CAPM), Short-
sale Restrictions and Related Issues, Journal of Finance, 32 (177)
 Sharpe, William F. (1964). "Capital asset prices: A theory of market
equilibrium under conditions of risk". Journal of Finance. 19 (3): 425–442.
 Dreman David N.; Berry Michael A. (1995). "Overreaction, Underreaction,
and the Low-P/E Effect". Financial Analysts Journal. 51 (4): 21–30.
Equilibrium Models
8 H 25-Oct · Arbitrage Pricing Theory
Required Reading: BKM Chapter 10
Recommended Reading:
 Fama, E; French, K (1996). "Multifactor explanation of asset pricing
anomalies". Journal of Finance. 51 (1): 55–84.
 Fama, E; French, K (2008). "Dissecting Anomalies". Journal of Finance. 63
(4): 1653–78.
9 T 30-Oct · Limitations
Required Reading: BKM Chapter 10

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 Recommended Reading:
 Roll, R. (1977). "A Critique of the Asset Pricing Theory's Tests". Journal of
Financial Economics. 4 (2): 129–176.
 De Brouwer, Ph. (2009). "Maslowian Portfolio Theory: An alternative
formulation of the Behavioural Portfolio Theory". Journal of Asset
Management. 9 (6): 359–365.
H 01-Nov · Empirical Evidence
Required Reading: BKM Chapter 9 and 10
Recommended Reading:
 Fama, Eugene (1965). "The Behavior of Stock Market Prices". Journal of
Business. 38: 34–105.
 Samuelson, Paul (1965). "Proof That Properly Anticipated Prices Fluctuate
Randomly". Industrial Management Review. 6: 41–49.
 Fama, Eugene (1970). "Efficient Capital Markets: A Review of Theory and
Empirical Work". Journal of Finance. 25 (2): 383–417.
 Jegadeesh, N; Titman, S (1993). "Returns to Buying winners and selling
losers: Implications for stock market efficiency". Journal of Finance. 48 (1):
65–91.
 Jegadeesh, N; Titman, S (2001). "Profitability of Momentum Strategies: An
evaluation of alternative explanations". Journal of Finance. 56 (2): 699–720.
 Jordan, J. (1983). On the Efficient Markets Hypothesis. Econometrica, 51(5),
1325-1343.
 Malkiel, B., 1996, A Random Walk Down Wall Street. New York: W. W.

 Malkiel, B. (2003). The Efficient Market Hypothesis and Its Critics. The
Journal of Economic Perspectives, 17(1), 59-82
Analysis of Asset Classes
· Fixed Income Equities: Bond Prices and Yields
November 10 T 6-Nov Academic Holiday (No Class)
H 8-Nov · Fixed Income Equities: Bond Prices and Yields
Required Reading: BKM Chapter 3 and 14
Recommended Reading:
 Merton, R. (1974). On the Pricing of Corporate Debt: The Risk Structure of
Interest Rates. The Journal of Finance, 29(2), 449-470.
 Sarig, O., & Warga, A. (1989). Some Empirical Estimates of the Risk
Structure of Interest Rates. The Journal of Finance, 44(5), 1351-1360.
 Bauman, W. (1969). Investment Returns and Present Values. Financial
Analysts Journal, 25(6), 107-120.
 Eck, J. (1996). Calculating The Present Value Of An Increasing Flow Of
Funds. Journal of Financial Education, 22, 69-72.
11 T 13-Nov · Fixed Income Equities: The Term Structure of Interest Rates
H 15-Nov · Fixed Income Equities: The Term Structure of Interest Rates
Required Reading: BKM Chapter 15
Recommended Reading:
 Cox, J., Ingersoll, J., & Ross, S. (1981). A Re-Examination of Traditional
Hypotheses about the Term Structure of Interest Rates. The Journal of
Finance, 36(4), 769-799.
 Jarrow, R. (2009). The Term Structure of Interest Rates. Annual Review of
Financial Economics, 1, 69-96.
 Malkiel, B. (1964). The Term Structure of Interest Rates. The American
Economic Review, 54(3), 532-543

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 12 T 20-Nov Academic Holiday (No Class)
H 22-Nov Thanksgiving (No Class)
13 T 27-Nov · Fixed Income Equities: Managing Bond Portfolios
Required Reading: BKM Chapter 16
Recommended Reading:
 See above.
H 29-Nov · Derivatives: Options Markets: Introduction
Required Reading: BKM Chapter 20
Recommended Reading:
 Arditti, Fred D. (1996). Derivatives: A Comprehensive Resource for Options,
Futures, Interest Rate Swaps, and Mortgage Securities. Boston: Harvard
Business School Press.
December 14 T 4-Dec · Derivatives: Options Markets: Valuation
Required Reading: BKM Chapter 21
Recommended Reading:
 Black, F., & Scholes, M. (1972). The Valuation of Option Contracts and a
Test of Market Efficiency. The Journal of Finance, 27(2), 399-417
 Quigg L. (1993). Empirical Testing of Real Option-Pricing Models. The
Journal of Finance. Vol. 48, No. 2 (Jun., 1993), pp. 621-640
H 6-Dec · Derivatives: Futures Markets
Required Reading: BKM Chapter 22
Recommended Reading:
 Schaede, Ulrike (September 1989). "Forwards and futures in to kugawa-
period Japan: A new perspective on the Dōjima rice market". Journal of
Banking & Finance. 13 (4–5): 487–513.
 Hill, J., & Schneeweis, T. (1984). Reducing Volatility with Financial Futures.
Financial Analysts Journal, 40(6), 34-40.
 Merrick, J. (1988). Hedging with Mispriced Futures. The Journal of Financial
and Quantitative Analysis, 23(4), 451-464.
 Polinsky, A. (1987). Fixed Price versus Spot Price Contracts: A Study in Risk
Allocation. Journal of Law, Economics, & Organization, 3(1), 27-46.
H 6-Dec · Derivatives: Futures, Swaps, and Risk Management
Required Reading: BKM Chapter 23
Recommended Reading:
 Redhead, Keith (1997). Financial Derivatives: An Introduction to Futures,
Forwards, Options and Swaps. London: Prentice-Hall.
 Lioui, Abraham; Poncet, Patrice (2005). Dynamic Asset Allocation with
Forwards and Futures. New York: Springer.
 Black, F., & Scholes, M. (1972). The Valuation of Option Contracts and a
Test of Market Efficiency. The Journal of Finance, 27(2), 399-417
T 11-Dec · Study Days
14-21-
F -F
16 Dec FINAL EXAM WEEK (THURSDAY, DEC 20, 2018)

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