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Foundations
of financial markets - Fall 2007 |
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Week 1: BKM 1
September 5
Introduction
Syllabus 
Book picture! 
Class slides 
A video on Mortgage Backed Securities 
The two most dangerous words on Wall Street 
It’s not funny being Fannie! 
Week 2: BKM 2
September 10
Securities
Class slides
Download Homework 1 (due 9/19)
September 12
Securities (cont’d)
Announcement: we
officially have two TF's for the course [read
more here]
An article on very exotic
securities
Why is LIBOR defying
gravity? 
Taxing munis?
Week 3: BKM 3
September 17
Financial Markets
Announcement: TF's
have set up office hours [read
more here]
Class slides
Download Homework 2 (due 9/26)
An article on high return IPOs in the last three years
Where you googling 3 years ago? 
September 19
Short selling and buying on
margin
A look at the
markets: FED cuts rate by 50 basis points
Class slides
Solution to Homework 1
Week 4: BKM 5
September 24
Risk and Return
Class slides
The linear regression model
Download Homework 3 (due 10/3)
September 26
Asset Allocation (a primer)
Class slides on bivariate
asset allocation
Class slides on risk
aversion
More on forecasting volatility 
Solution to Homework 2
Week 5: BKM 6
October 1
Efficient diversification
Class slides
Examples 
Download Homework 4 (due 10/10)
October 3
Efficient diversification (cont’d)
An example of the benefits of diversification
Some plots of correlations
An example of asset allocation with two risky and one riskless
asset
Optimal portfolios with different borrowing and lending rates
A stock picking story 
Solution to Homework 3
Week 6: BKM 6
October 8
No class
Columbus Day! 
October 10
One factor models
Make sure to review the notes on the linear regression model
Class slides
Solution to Homework 4
Week 7: BKM 7
October 15
Capital Asset Pricing Model
(CAPM)
Class slides
Download Homework 5 (due 10/24)
October 17
Arbitrage Pricing Theory (APT)
Three quick
questions
Download practice questions
Week 8: BKM 8
October 22
Efficient markets
Class slides
Do we live in a behavioral world?
October 24
Revision for midterm
Solution to Practice
questions
Solution to Homework 5
Week 9: BKM 9
October 29
First Midterm
October 31
Bonds and yields
Class slides
Download Homework 6 (due 11/7)
Week 10: BKM 9 and 10
November 5
Term structure
We will use last week’s slides
A video on Ratings scandals
Download Homework 7 (due 11/14)
November 7
Duration and Immunization
Class slides
Solution to Midterm exam
Solution to Homework 6
Week 11: BKM 14 and last part of BKM10
November 12
Immunization and Introduction to
Option Markets
Class slides on Immunization
Class slides on Options Markets
Download Homework 8 (due 11/21)
November 14
Options strategies
We will use the slides of
last Monday
Solution to Homework 7
Week 12: BKM 15
November 19
Options strategies (cont’d)
We will use last week’s
slides
Download Homework 9 (due 11/28)
November 21
Binomial options models
Class slides
Add-on to binomial pricing model
Solution to Homework 8
Week 13: BKM 16
November 26
Black and Scholes options model
We will use the slides from
last Wednesday
Black and Scholes spreadsheet
What happens when Microsoft pays a dividend?
Download Homework 10 (due 12/5)
November 28
Futures
Class slides
Solution
to Homework 9
Week 14
December 3
CLASS CANCELLED
The due date for homework 10 is postponed to 12/10
December 5
Futures (cont’d)
A clip from the movie
`Trading Places’ 
Download practice questions
Week 15
December 10
Revision for Final exam
Download solution to practice questions
Solution
to Homework 10
December 12
Principles of Valuation
Class slides on Principles of equity valuation
Instruction on how to complete the teaching evaluations for this
course [click
here]
Final Exam
December 17
Section
1(MW-11am)
Exam is at 10am
If your last name starts with A-K come to LC10
If your last name starts with L-Z come to UC65
Section
2(MW-2pm)
Exam is at 2pm
If your last name starts with A-K come to UC52
If your last name starts with L-Z come to LC10
Section
3(MW-4.55pm)
Exam is at 6pm
If your last name starts with A-K come to LC10
If your last name starts with L-Z come to UC62