On Thursday, after going through the solutions for today’s midterm exam 2, I will introduce the topic of (financial) derivatives (specifically, options and futures) in Finance 4335. Besides studying how derivatives are used to manage price-related risks (for more on this, see “A Beginner’s Guide to Hedging“), further study of derivatives also yields important insights into how firm-specific risks affect corporate value.
The assigned readings for Thursday’s class include:
1. Derivatives and Options (Doherty, Chapter 6)
2. Teaching the Economics and Convergence of the Binomial and Black-Scholes Option Pricing Formulas, by James R. Garven and James I. Hilliard
Finally, Quiz 8 is based on these readings, and it must be completed prior to the start of class on Thursday afternoon.