Foundations of Financial Markets
Course Number C15.0002 , Sections 1, 2, and 3
Stern School of Business, Spring 2006

Syllabus and Course Overview
 

Professor:

Lasse H. Pedersen
Email: lpederse@stern.nyu.edu
Homepage: http://www.stern.nyu.edu/~lpederse/
Office Hours: Wednesday 4:45-6:00 PM in Tisch 429

Teaching Assistants:
 
Name Office Hours Room Email
 Marco Ruiz  Monday 4:45 -5:45pm

 Tuesday  1 - 3:30pm
Mon: outside Tisch 429
          or in Tisch 436
Tue: KMC 7-158
 marco.ruiz@stern.nyu.edu
 Nurian Paz
 Tuesday  3:30 - 4:30pm
 Thursday 4 - 5pm
Both days: KMC 7-158  nqp7361@stern.nyu.edu
 
     

 

Legend:

BKM: Bodie, Kane, and Marcus, "Essentials of Investments" Sixth Edition
RWJ:  Ross, Westerfield, and Jordan, "Essentials of Corporate Finance,'' Custom Edition.
  :   Key issues, read carefully.
  :   Background material, skim. (Exam questions are not directly related to background material.)
  :   Graded problem sets. (Listed on due date.)
  :   Suggested problems, not graded. (Listed with related topic.)
  :   Challenging problems, not graded.

Examples:
  Readings: "BKM 1" means all of Chapter 1;
  Readings: "BKM 3.8, 5." means Chapter 3 Section 3.8, and all of Chapter 5.
  Problems: "BKM 3.6." means Chapter 3, Problem 6.

Lectures(Last updated: January 10, 2006.)
 
# Date Topic
Readings
Problems
01 Jan. 18.
Overview of class.
Financial instruments and why we need them.
BKM 1, 2.  
02 Jan. 23.

Financial markets. How securities are traded. BKM 3.1-3.7.
BKM 3.8, 21.1-21.3.
BKM 3.6.
03 Jan. 25.

Time value of money. FV, PV, annuities, perpetuities.

Core enhancement (C15.0002a) Orientation, Prof. Yuanxing Dong.

RWJ 4, 5.1, 5.2. RWJ 4.8, 4.11, 
4.15, 4.16, 4.25, 5.4, 
5.10, 5.11, 5.19, 5.33. 
Solutions.
04 Jan. 30.

Return measures
Statistics review.
RWJ 5.3.
BKM 5.1.
RWJ 5.4.
C1
BKM 5.1.
05 Feb. 1.

Risk and expected return.
 
BKM 5.2-5.3. P01, S01
BKM 5.4, 5.5..
06 Feb. 6.

Portfolio selection with two risky securities. BKM 6.1-6.2. BKM 6.5.
07 Feb. 8.

Portfolio selection with two risky securities, continued. BKM 6.1-6.2. P02, S02
BKM 6.6.
 Excel example: portfolio selection
08 Feb. 13.

Portfolio selection with a riskless security.
BKM 5.5, 6.3. BKM 6.7-10. 
C2
09 Feb. 15.

Portfolio selection with multiple risky securities. BKM 6.4 P03, S03
BKM 6.13.
 Excel example: portfolio optimizer
  Feb. 20. Holiday: President's Day    
10 Feb. 22.

Equilibrium asset pricing: The Capital Asset Pricing Model. BKM 6.5, 7.1-7.2. P04, S04
BKM 7.3, 7.15.
11  Feb. 27.

Equilibrium asset pricing: The Capital Asset Pricing Model, continued. BKM 7.2-7.3. BKM 7.17-18. 
12 Mar. 1.

Equilibrium asset pricing: The Capital Asset Pricing Model, continued. BKM 7.2-7.3. P05, S05
BKM 7.8-12.
Excel example: CAPM
13 Mar. 6.

Review Session. All of the above. Sample midterm
14 Mar. 8.

Midterm.    

Mar. 13/15.
Spring Break


15 Mar. 20.

Equity valuation. BKM 12. BKM 12.1, 12.3 
16 Mar. 23.

Arbitrage.
Lecture notes.  
17 Mar. 27.

Fixed income securities: Prices and yields. BKM 9.1
BKM 9.2-9.3.
BKM 9.2. 
18 Mar. 29.

Fixed income securities: Prices and yields, continued. BKM 9.3-9.4 P06, S06
BKM 9.4, 9.22.
19 Apr. 3.

Fixed income securities: Yield curve and forward rates. BKM 9.6. BKM 9.30
20 Apr. 5.

Management of interest-rate risk: Duration and immunization. BKM 10.1-10.3.
BKM 10.4.
P07, S07
BKM 10.1-4.
 Excel example: immunization
21 Apr. 10.

Options basics and strategies. BKM 14.1-14.2.
BKM 14.3-14.4. 
BKM 14.5,14.25, 14.26.
22 Apr. 12.

Option strategies, continued.
No-arbitrage bounds on options.
BKM 14.2. P08, S08
23  Apr. 17.

No-arbitrage bounds on options and the put-call parity. BKM 15.1.
BKM p. 546-549.
BKM 15.1, 15.22.
24 Apr. 19.

Binomial Option Pricing. BKM 15.2. P09, S09
BKM 15.27.
25 Apr. 24.

Black-Scholes-Merton Option Pricing. BKM 15.3-15.4. BKM 15.7 
 Excel example: option
26  Apr. 26.

Market Efficiency. BKM 8. P10, S10
BKM 8.3, 8.17, 8.20.
27  May. 1.

Review Session. All of the above. Sample Final
   

Exams:
Please check the official NYU website for updates on exam time and room!

Class meeting MW 8:00-9:15 has exam Monday 5/8 8am-9:50am

Class meeting MW 2:00-3:15 has exam Monday 5/8 2pm-3:50pm
Class meeting MW 3:30-4:45 has exam Wednesday 5/3 4pm-5:50pm

All exams are held in the same room as where the class meets 
unless otherwise noted.

 How to get a good grade