COURSE
NUMBER: MBA237.2
COURSE
TITLE: Financial Derivatives
UNITS
OF CREDIT: 3.0
INSTRUCTOR:
Nicolae Garleanu
E-MAIL ADDRESS: garleanu@haas.berkeley.edu
CLASS
WEB PAGE LOCATION: http://bspace.berkeley.edu
MEETING
DAY(S)/TIME: Mondays and Wednesdays 11:00AM – 12:30PM
PREREQUISITE(S):
MBA203
CLASS
FORMAT: lectures and short cases
REQUIRED
READINGS: lecture notes, additional material posted on line; textbook readings
recommended
BASIS
FOR FINAL GRADE: midterm and final examinations, class participation, problem
sets (homework)
ABSTRACT
OF COURSE'S CONTENT AND OBJECTIVES: The derivative class is the largest asset
class worldwide, comprising securities worth more than $35 trillion and laying
claim to assets worth almost $600 trillion. (In contrast, the total value of
all publicly traded companies in the world is around $50 trillion.) The
extraordinary size and growth of this class owe to the usefulness of
derivatives as instruments for taking tailored risk positions. For example, a
gold miner can (pay a price to) eliminate the risk it has to sell gold below
$800/oz; an investor bullish on Microsoft can take a position that pays off
when the price of Microsoft climbs to a value between $30 and $35, but not
otherwise; a European exporter can shield itself against revenues dropping due
to the rise of the Euro above $1.60; a bond investor can pass the default risk
in its bond portfolio to another, perhaps more risk tolerant, investor; etc. In
addition, the main features of derivatives characterize all common corporate
securities and numerous other financial contracts – for instance, the contracts
used by the
The
main goals of the course are that students learn: (i) what derivatives are,
(ii) how to use derivatives, and (iii) how to price derivatives.
The
course is going to introduce a large number of derivatives, starting with the
standard ones – futures, forwards,
swaps, and plain-vanilla options – and continuing with more “exotic” ones –
exotic options, credit default swaps (CDS), asset-backed securities (e.g., MBS,
CDO), etc. A very important aspect of the course is the fair pricing of
derivatives; based on the notion of “no arbitrage”, the course will derive the
correct price for the derivatives studied, which will involve building models
of the statistical behavior of underlying-asset (e.g., equity, currency, or
commodity) prices. These models also allow precise statements concerning the
correct derivative position to take in order to achieve a particular risk
exposure, whether motivated by speculative or hedging reasons. The course will
introduce precise metrics for the evaluation of a portfolio's risk, ranging
from the classical ones, such as variance or beta, to ones developed more
recently, such as value at risk (VaR).
BIOGRAPHICAL
SKETCH: After obtaining his PhD in Finance from the Stanford GSB, Professor
Garleanu taught at INSEAD and Wharton before moving to Haas in 2007. At Haas,
he has taught the core finance course in the day MBA program and modules on
derivatives and on risk management in the IMCA executive program.
Professor
Garleanu's research studies theoretically the determinants of asset prices.
Thus, his papers investigate the average equity-market return in excess of bond
returns, the difference in returns between growth and value stocks, apparent
systematic anomalies in the prices of options, the effect of liquidity in over-the-counter markets, the impact of trader funding constraints, and
others. His papers have been published in top scholarly journals including
Econometrica, the Review of Financial Studies, the Journal of Financial
Economics, and the Journal of Economic Theory.