Fall 2004 Finance 4366 Weblog

Final Exam and Course Grades

The final exam scores are in.  Here are the descriptive statistics: 

The final course grade distribution is as follows:

You can determine your final letter grade for Finance 4366 by comparing your “Course Grade” number with the following grade distribution:

E.g., if you have a 79.3, this means that you earned a B+.  The class GPA ended up being 3.15 (3 A’s, 2 B+’s, 2 B’s, 1 C+, and 2 C’s).

Information about the Final Exam

I have just finished writing the final exam for Finance 4366.  The test consists of the following sections:

Section 1 (70 points).  This section consists of Problem #1.1 and Problem #1.2.  Each problem is worth 35 points.

• Problem #1.1 addresses concepts such as the theory of risk aversion, risk measurement, insurance pricing, demand for insurance, the certainty equivalent of wealth, the risk premium, etc. (basically stuff we covered prior to the first midterm).
• Problem #1.2 requires mapping out asset price and call option price binomial trees involving 3 timesteps.  The whole point is to determine the current fair market value for a call option.  The problem also addresses the whole issue of "dynamic hedging" in the binomial framework.  You would do well to review rather closely Introduction to Binomial Trees (Part 1) and  Introduction to Binomial Trees (Part 2).  Also the problem set that was assigned for chapter 10 (see Problem Set 6 Solutions).

Section 2 (30 points).  This section consists of Problem #2.1 and Problem #2.2.  Each problem is worth 15 points.

• Problem #2.1 involves computing the delta, rho, theta and vega of a call option and interpreting your results.  You'll want to review my options paper (comparative statics) for this one.
• Problem #2.2 involves setting up a specific option spread strategy, determining the payoffs from such a strategy, and determining a fair price for the spread. You'll want to review chapter 9 of the textbook and the related problem set (see Problem Set 5 Solutions).

Finally, I have also posted a new version of the Formula Sheet for Final Exam which more accurately reflects the exam content than what was previously (i.e., prior to Wednesday, 12/8/04 at 7:15 p.m. Central Time) available from this link.

One final and very important point - the exam will be given from 2-4 p.m. on Friday in HCB 408.  I will not give any makeups.

Tomorrow's (12/7) review session is canceled; I will hold office hours instead

I am canceling tomorrow's review session since I am only now beginning to write the exam.  In lieu of the review session, I'll be available instead for consultation at my office (HSB 351) from 11-12:20 tomorrow.

When I complete my writing of the exam, I plan to post (via email and blog) a very detailed explanation of what you'll need to study for. I hope to get this done by no later than Wednesday, 12/8.

PointOfLaw.com

I am quite pleased to receive what I consider to be a highly credible "third party" endorsement of my recent insurance reform entry from Walt Olson, who is a regular contributor to PointOfLaw.com.  For those of you who are not familiar with PointOfLaw.com, this weblog is published by the Manhattan Institute and it is an excellent source of information and opinion on the U. S. civil justice system.

The Blogosphere Just Got A Whole Lot Smarter

According to Inter Alia, the blogosphere just got a whole lot smarter, since "Nobel-prize-winning economist Becker and federal circuit judge Posner have made their introductory post and will be blogging over here."

Why is this such an important development?  As Tyler Cowen notes, "If Posner were a law school, his citation index would put him in or close to the top ten.  And Becker just gave up his Business Week column a few months ago.  He is also the most widely cited living economist, not to mention that Nobel Prize."

Richard Posner is one everyone's short list to get appointed as a Supreme Court justice.  That may be wishful thinking.  As we learned from the (non)confirmation hearings for Robert Bork back in 1987, the problem with being a prolific scholar is that by leaving such an enormous paper trail, it provides all the more ammunition that political opponents can fire at the prospective nominee.  Perhaps the most distinguishing characteristic of post-Bork nominees who have been confirmed to the bench (including Anthony Kennedy (1988), Clarence Thomas (1991), Ruth Bader Ginsburg (1993), and Stephen Breyer (1994)) is their comparatively thin vitas.

George Costanza, risk management "expert"

Risk management has become so popular that even George Costanza has become an "expert" (Windows Media).

National "do not call" cell phone registry

A national directory of cell phone numbers will be published soon, which will open the door to solicitors calling your cell phone and using up your minutes. Fortunately, the Federal Trade Commission (FTC) has set up a national "do not call" cell phone registry.

There are two ways to register your cell phone:

1. Online: https://www.donotcall.gov/register/Reg.aspx (the procedure is obvious)
2. Offline: You must call 1-888-382-1222 FROM the cell phone you wish to register.

Plan for the last day of class!

I have reconsidered my plan for tomorrow's class, and I have decide to forgo any coverage of my Optimal Exercise Rules for American and European Options lecture note.  We will finish the comparative statics analysis (specifically with respect to the option vega), we can talk about the final exam, and I can also go over any questions you may have concerning problem set 8.  Also, we need to make sure that we get the teacher evaluation done tomorrow as well.

Finals Week: Information concerning review session and office Hours for FIN 4366

Tomorrow, I will be obviously giving the final lecture for the course and have you fill out the teacher evaluation form. 

During Finals week, I am planning on holding a review session as well as on- and off-campus office hours:

• Final Exam Review Session: Tuesday, December 7, 11-12:20, in HCB 408
  
• On-campus office hours: Tuesday, December 7, 2-5 p.m., in HSB 351
• During on-campus office hours, I can also be reached by phone (710-6207), by e-mail (James_Garven@baylor.edu), and AOL Instant Messenger (my screen name is "drgarven").
  
• Off-campus office hours: Wednesday, December 8, 10-11:30 a.m. and Thursday, December 9, 10-11:30 a.m.
• During off-campus office hours, I can be reached e-mail and AOL Instant Messenger.  If you want a callback, email or IM a number and time at which I can reach you.

During Finals week, even if you have a conflict with the times that I have designated above, go ahead and email me, and I will respond as soon as I can (during business hours this will typically be within 30-60 minutes).