2019 CFA exam scholarship opportunity (Deadline: January 30, 2019)

In case if any of you are planning on sitting for CFA (Chartered Financial Analyst) exams this coming June and December, you might consider taking advantage of this scholarship opportunity:

Student/Awareness Scholarships

June 2019 and December 2019 CFA Exams

What is it?

The CFA Institute grants “Affiliated Schools” such as Baylor several scholarships per year in accordance with Official Scholarships Rules. Scholarship awards reduce the CFA Program enrollment and exam registration fees to \$350, which includes the eBook curriculum.

How to apply?

If you are not enrolled in the CFA Program, you must create a CFA Institute account in order to receive your login information and access the scholarship application. The online application can be found here: https://www.cfainstitute.org/en/programs/cfa/scholarships/student

Candidates should (1) submit the application form on the CFA Institute website and (2) email Brandon_Troegle@baylor.edu prior to January 30, 2019, though earlier applications are encouraged. In the body of the email, please include:

• A summary statement on why you should be considered for the scholarship. This statement should include what you hope to achieve by pursuing the CFA charter, your career goals, and you can discuss academic achievements/performance including GPA information in you wish.
• Major(s)
• Did you apply for the Access Scholarship (the other scholarship)? If not, why not?
• Any other information you believe will aid in the scholarship decision

What is the evaluation process and criteria?

Awards will be made based on a combination of factors including interest in and rationale for pursuing the CFA charter, academic accomplishments, and other personal characteristics that indicate the applicant is a strong scholarship candidate.

Spreadsheet from today’s Finance 4335 class meeting

The spreadsheet linked below from today’s class meeting numerically illustrates how the binomial probability distribution can be used to determine the probability of r “successes” in n coin tosses. Here, r corresponds to the number of heads (tails), and n-r corresponds to the number of tails (heads).

I have begun posting Finance 4335 numeric course grades to Canvas. To date, we have had three class meetings, two quizzes, and two problem sets (problem set 1 and the student questionnaire which was graded on a (0, 100) basis). The only item on this list which does not yet have recorded grades is problem set 1, which was turned in yesterday. Since we haven’t had any exams yet, the course grade which now appears on Canvas was calculated using the following equation:

Current Course Numeric Grade = (.10(Class Attendance) + .10(Quizzes) + .20(Problem Sets))/.4

Or course, this is simply a special case of the final course numeric grade equation given in the course syllabus:

Final Course Numeric Grade = .10(Class Attendance) + .10(Quizzes) + .20(Problem Sets) + Max{.20(Midterm Exam 1) + .20(Midterm Exam 2) + .20(Final Exam), .20(Midterm Exam 1) + .40(Final Exam), .20(Midterm Exam 2) + .40(Final Exam)}

As time passes and I continue to collect grade data from you, the grades as reported on Canvas will be posted on a timely basis. Once Midterm 1 grades are determined, then the Canvas course grade will be calculated using the following equation:

Course Numeric Grade after Midterm 1 = (.10(Class Attendance) + .10(Quizzes) + .20(Problem Sets) + .20(Midterm 1))/.6

Once Midterm 2 grades are determined, then the following equation will be used:

Course Numeric Grade after Midterm 2 = (.10(Class Attendance) + .10(Quizzes) + .20(Problem Sets) + .20(Midterm 1) + .20(Midterm 2))/.8

Reminder about tomorrow’s assignments in Finance 4335

Problem Set 1 is due at the beginning of class tomorrow (see the hint that I gave about this problem set in a previous blog posting.  Class will also begin tomorrow with a brief quiz based upon the assigned readings, which include “The New Religion of Risk Management”, by Peter Bernstein and “Normal and standard normal distribution”, by yours truly.

Going forward, I will typically not post reminders like this concerning Finance 4335 assignment deadlines; however, you’ll be “good to go” in Finance 4335 if you faithfully follow the guidelines listed in my “How to know whether you are on track with Finance 4335 assignments” posting.

Visualizing Taylor polynomial approximations

In his video lesson entitled “Visualizing Taylor polynomial approximations“, Sal Kahn essentially replicates the tail end of last Thursday’s Finance 4335 class meeting in which we approximated y = eˣ with a Taylor polynomial centered at x=0.  Sal approximates y = eˣ with a Taylor polynomial centered at x=3 instead of x=0, but the same insight obtains in both cases, which is that one can approximate functions using Taylor polynomials, and the accuracy of the approximation increases as the order of the polynomial increases (see pp. 19-25 in my Mathematics Tutorial lecture note if you wish to review what we did in class on Thursday).

Plans for next week’s Finance 4335 class meetings, along with a preview of future topics

Next week in Finance 4335 will be devoted to tutorials on probability and statistics. These tools are critically important in order to evaluate risk and develop appropriate risk management strategies for individuals and firms alike. Next Tuesday’s class meeting will be devoted to introducing discrete and continuous probability distributions, calculating parameters such as expected value, variance, standard deviation, covariance and correlation, and applying these concepts to measuring expected returns and risks for portfolios consisting of risky assets. Next Thursday will provide a deeper dive into discrete and continuous probability distributions, in which the binomial and normal distributions are showcased.

While I have your attention, let me briefly explain what the main “theme” will initially be in Finance 4335 (up to the first midterm exam, which is scheduled for Thursday, February 21). Starting on Tuesday, January 29, we will begin our discussion of decision theory. Decision theory addresses decision making under risk and uncertainty, and not surprisingly, risk management lies at the very heart of decision theory. Initially, we’ll focus attention on variance as our risk measure. Most basic finance models (e.g., portfolio theory, the capital asset pricing model (CAPM), and option pricing theory) implicitly or explicitly assume that risk = variance. We’ll learn that while this is not necessarily an unreasonable assumption, circumstances can arise where it is not an appropriate assumption. Furthermore, since individuals and firms are typically exposed to multiple sources of risk, we need to take into consideration the portfolio effects of risk. To the extent that risks are not perfectly positively correlated, this implies that risks often “manage” themselves by canceling each other out. Thus the risk of a portfolio is typically less than the sum of the individual risks which comprise the portfolio.

The decision theory provides a particularly useful framework for thinking about concepts such as risk aversion and risk tolerance. The calculus comes in handy by providing an analytic framework for determining how much risk to retain and how much risk to transfer to others. Such decisions occur regularly in daily life, encompassing practical problems such as deciding how to allocate assets in a 401-K or IRA account, determining the extent to which one insures health, life, and property risks, whether to work for a startup or an established business and so forth. There’s also quite a bit of ambiguity when we make decisions without complete information, but this course will at least help you think critically about costs, benefits, and trade-offs related to decision-making whenever you encounter risk and uncertainty.

After the first midterm, the remainder of the semester will be devoted to various other risk management topics, including the demand for insurance, asymmetric information, portfolio theory, capital market theory, option pricing theory, and corporate risk management.

Volatility, now the whole thing

It just so happens that Hoover Senior Fellow (and former Univ. of Chicago Finance professor) John Cochrane posted an article yesterday entitled “Volatility, now the whole thing” which builds and expands upon today’s implied volatility topic in Finance 4335. Cochrane’s article provides a broader framework for thinking critically about the implications of volatility for future states of the overall economy. This article is well worth everyone’s time and attention, so I highly encourage y’all to read it!

Lagrangian Multipliers

There is a section in the assigned “Optimization” reading due Thursday, 1/17 on pp. 74-76 entitled “Lagrangian Multipliers” which (as noted in footnote 9 of that reading) may be skipped without loss of continuity. The primary purpose of this chapter is to re-acquaint students with basic calculus and how to use the calculus to solve so-called optimization problems. Since the course only requires solving unconstrained optimization problems, there’s no need for Lagrangian multipliers.

Besides reading the articles entitled “Optimization” and “How long does it take to double (triple/quadruple/n-tuple) your money?” in preparation for this coming Thursday’s meeting of Finance 4335, make sure that you fill out and email the student information form as a file attachment to risk@garven.com prior to the beginning of tomorrow’s class. As I explained during today’s class meeting, this assignment counts as a problem set, and your grade is 100 if you turn this assignment in on time (i.e., sometime prior to tomorrow’s class meeting) and 0 otherwise.

How to know whether you are on track with Finance 4335 assignments

At any given point in time during this semester, you can ensure that you are on track with Finance 4335 assignments by monitoring due dates which are published on the course website. See http://fin4335.garven.com/readings/ for due dates pertaining to reading assignments, and http://fin4335.garven.com/problem-sets/ for due dates pertaining to problem sets.  Also, keep in mind that short quizzes will be administered in class on each of the dates indicated for required readings. As a case in point, since the required readings entitled “Optimization” and ” How long does it take to double (triple/quadruple/n-tuple) your money?” are listed for Thursday, January 17, this means that a quiz based upon these readings will be given in class on that day.

Important assignments due on the second class meeting of Finance 4335 (scheduled for Thursday, January 17) include: 1) filling out and emailing the student information form as a file attachment to risk@garven.com, 2) subscribing to the Wall Street Journal, and 3) subscribing to the course blog. A completed student information form is graded as a problem set and receives 100 points; if you fail to turn in a student information form, then you will receive a 0 for this “problem set”. Furthermore, tasks 2 and 3 listed above count toward your class participation grade in Finance 4335.

Regarding the student information form, I prefer that you complete this form (by either typing or writing) and email it to risk@garven.com prior to the beginning of class on Thursday, January 17.  However, if you prefer, you may turn in a hard copy instead at the beginning of class on that day.

Instructions for subscribing to the Risk Management Course Blog

A course blog has been established for Finance 4335 at the address http://risk.garven.com; it is also linked from the “Course Blog” button located on the course website. I recommend that you follow the risk management course blog regularly via email, Facebook, and/or Twitter.

The risk management course blog provides me with a convenient means for distributing important announcements to the class. Topics covered on the course blog typically include things like changes in the course schedule, clarifications and hints concerning problem sets, information about upcoming exams, announcements concerning extra credit opportunities, and short blurbs showing how current events relate to many of the topics which we cover in Finance 4335.

If you are either a Facebook or Twitter user, everything that is posted on the options, futures, and other derivatives course blog is automatically posted to Facebook and “tweeted”, so you can also subscribe by “liking” the Finance 4335 Facebook page or by “following” @fin4335 on Twitter. Finally, you can also subscribe via email. The remainder of this blog entry explains how to subscribe to the risk management course blog via email.

Email Subscription Instructions:

Email Subscription Instructions: If you would like to receive the risk management course blog via email, you can do this by going to http://risk.garven.com and entering your email address in the form provided on the left hand side of that webpage:

After clicking “Subscribe”, the following information will appear on the screen:
Next, check for an email from “Risk Management Blog <donotreply@wordpress.com> ”:

Next, simply click the “Confirm Follow” button. This will cause you to receive the following email:

From that point forward, whenever I post to the course blog, you will immediately receive a nicely formatted version of the blog posting via email. Also, you can opt to change your delivery preferences, or even cancel your subscription.