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Prerequisites: FIN 2227 + FIN 2323 + FIN 2114


Class: TR 3:55 – 5:10 pm, Bartley 3068
Zoom Office Hours: Thurs 1-2pm, or schedule an appointment

Dr. Raisa Velthuis

Office: Bartley 2085, (610) 519–4319
Message me on Microsoft Teams or Google Chat

Please reach out to me!

Futures and options contracts are among the most actively traded financial instruments. They are an important segment of contemporary financial markets. This course examines exchange-traded and over-the-counter derivative contracts such as futures, forwards, options, and swaps. The goal is to develop a core set of principles that will help us understand the diverse ways that derivatives are used in practice. These principles are developed through a series of real-world examples with an emphasis on simultaneously developing intuition and familiarity with a broad spectrum of markets, as well as valuation, and risk-management applications. The course is quantitative, and we will work with various equations. However, a large emphasis is placed on understanding the economic concepts behind the equations. The material in this course should be useful to anyone who is planning a career in trading, corporate finance, risk management, management consulting, or any other field involving financial decision making. In my class, you can expect to be challenged, engaged, and supported as you explore the multifaceted world of financial derivatives!

Learning outcomes: What you will know

Upon successful completion of FIN2325, you will be able to:

  1. Understand how derivative markets operate

  2. Compare and contrast various basic derivative contracts, including forwards, futures, swaps, and options.

  3. Implement hedging or trading strategies using derivatives

  4. Employ the binomial model, Black-Scholes model, and use simulations to price options

  5. Discuss financial news and gain awareness of the risks involved with derivatives.

What book and other materials do I need?

Textbook: Fundamentals of Futures and Options Markets, 9th Edition, by John C. Hull, Pearson, 2017. ISBN 978-0134083247. The latest version of the software Derivagem can be downloaded from the author’s website.

Access to news sources, e.g., Wall Street Journal, Financial Times.
Refer to the Library site for info on how to access your free VSB subscriptions.

Office 365: Files will be shared on OneDrive, which you can sync to your computer automatically. For more details, see

Calculator: A financial calculator will be required for this course and should brought to each class for solving problems. I recommend the Texas Instruments BAII Plus (which I will be using) or the Hewlett Packard HP 10bII+. Calculators with storage capability will not be allowed for exams.

Q&A: This term we will be using Piazza for class discussion. The system is highly catered to getting you help fast and efficiently from classmates and myself. I encourage you to post your questions on Piazza, instead of relying on email. Your contributions count towards class participation. 

Classroom Expectations:

You are expected to have read the required textbook chapters or other assigned materials ahead of class. Please come prepared with questions. Your participation in class will be important to facilitate and benefit everyone’s learning.

COVID-19 Policies:

Course delivery: Each week, students are expected to attend one class in person and the remaining class via Zoom. At the start of the semester, students will be assigned a day of the week to attend in person. To take the course completely remotely, approval from the Clay Center is needed. Exceptions to attend virtually can be made to accommodate illness, quarantining, or other circumstances. Let me know if there are any problems or if there is anything else I can do to assist you.

Use of class materials and content: Class content will be recorded and provided to students at the instructors’ discretion. Students are not permitted to record, photograph, or otherwise capture any element of classes without prior, expressed permission from the course instructors. Similarly, students are not allowed to redistribute any course materials. All work submitted for any assignment or exam must be the student’s own work.

Laptop Policy:

Research shows that students who take notes by hand—rather than typing—have better memory and comprehension. Therefore, laptops will not be permitted for note-taking. Writing notes on a tablet (e.g, with a stylus) is allowed. At some point, laptops may be needed. I will indicate when we will need to use them.

Grading information:

The course grade is based on class participation, homework assignments, quizzes, a midterm exam, and a final exam. Homework will be assigned regularly and consists mostly of questions from the textbook and Excel problem sets. One homework or quiz with the lowest grade will be dropped from the final score.


Grades will be reported and updated in the gradebook on Blackboard. At the end of the semester, I will assign letter grades according to the following scale: A: 94 to 100, A-: 90 to 93.99, B+: 87 to 89.99, B: 83 to 86.99, B-: 80 to 82.99, C+: 77 to 79.99, C: 73 to 76.99, C-: 70 to 72.99, D+: 67 to 69.99, D: 63 to 66.99, D-: 60 to 62.99, and F: 59.99 and below.

Regrading policy: If you think that there are grading errors on your tests or your grade on an exam (or project) does not reflect the quality of your performance, submit the entire assessment together with a written explanation of your reasoning within a week of the return of the assessment. Any work submitted for re-grading will be subject to a complete re-grade, which means that your grade could go up, stay the same, or go down.


For each topic, you will be able to get practice and feedback in the following ways:

•Homework: Homework that assesses your understanding of the material will be collected or quizzed often. You can use Piazza to ask for help as you work through the problems.

•Video report: You will be asked to produce a five-minute video of your analysis of important current or historical events concerning financial derivatives. For example, you can choose topics from chapters 8 or 23 of the textbook on The Credit Crisis of 2007 or Derivatives Mishaps. Alternatively, you may study the effects of the current transition away from LIBOR. This project may be done in groups of up to three students.


Two non-cumulative exams will be given. Exams are to be taken in-person unless you have an approved accommodation. Students are allowed a 3x5” note card during the final exam. I recommend that you focus your studies on understanding the main concepts and ensuring that you can work out a variety of problems.


Makeup exam policy: To be excused from an exam, a student should (i) have an approved university or medical excuse, or (ii) submit a written request to be absent from an exam one week prior to the exam date.

Course Outline:

This outline is the expected order in which the information will be presented.  Depending on time constraints I may alter this outline.  You will be given ample notice if changes are made.

  • Introduction to Futures and Forward Markets – Ch. 1

  • Futures and Forward Markets – Ch. 2

  • The Fundamentals of Arbitrage and Futures Pricing – Ch. 5

Short selling, valuing futures contracts including stock index futures, currency futures & commodity futures

  • Hedging Strategies using Futures – Ch. 3

  • Interest Rate Futures – Ch. 4 and Ch. 6

Spot and forward rates, the term-structure of interest rates

Valuing Treasury bond futures, Treasury bill futures, and Eurodollar futures

  • Swaps – Ch. 7

Review session and mid-term exam.

  • Introduction to Options Markets – Ch. 9

  • Properties of Stock Options – Ch. 10

Factors affecting option prices, option boundary conditions

Put-call parity, early exercise

  • Trading Strategies Using Options – Ch. 11

  • The Binomial Option Pricing Model – Ch. 12

One-step Binomial model, risk-neutral valuation

Multi-step Binomial model, valuing American options

  • The Black-Scholes Model – Ch. 13 and Ch. 19

Stock price process, estimating volatility from historical data

No-arbitrage argument, the Black-Scholes pricing formula

Risk-neutral valuation, implied volatility

The volatility term structure

  • Index Options and Currency Options – Ch. 15

Valuation of stock index options and currency options

  • The Greek Letters – Ch. 17

Delta hedging, Theta, Gamma, Vega and Rho

  • Value at Risk – Ch. 20

  • Monte Carlo Simulation – Ch. 18

  • Exotic Options and Other Nonstandard Derivatives – Ch. 22

Review session and final exam.

Important Policy Information

Academic Integrity: When students come to Villanova, they join an academic community founded on the search for knowledge in an atmosphere of cooperation and trust. Students must be honest and forthright in their academic studies. To falsify the results of one’s research, to steal the words or ideas of another, to cheat on an assignment, or to allow or assist another to commit these acts corrupts the educational process. Students are expected to do their own work and neither give nor receive unauthorized assistance. Please familiarize yourself with the Code of Academic Integrity: Students are encouraged to visit the Academic Integrity Gateway, complete the interactive quiz, and use the web site as a resource:

Plagiarism/Copying: All work you submit for grading or academic credit is designed to reflect your knowledge and skill related to the course subject matter. Therefore, unless otherwise indicated, all work submitted is to be done on an individual basis. This includes but is not limited to all exams, quizzes, homework, papers, written assignments, and presentations. Plagiarism is claiming work as your own that you have copied from another person, whether that other person knows about it or not. This includes copying from web sites without proper source citation and using homework or papers prepared by current or past students, tutors, or online course sharing channels, whether working as an individual or working in a group / team. However, you may discuss homework questions with classmates on Piazza.

Students with disabilities: It is the policy of Villanova to make reasonable academic accommodations for qualified individuals with disabilities.  Students must present verification and register with Learning Support Services (LSS) by contacting 610-519-5176 or at
The Office of Disability Services (ODS) is the primary office at Villanova University with specialized knowledge and experience in physical disability issues. If you are a student living with a disability and you need accommodations for that disability, please register with the ODS. The office is located in the Connelly Center 2nd floor. Upon registration and receipt of proper documentation, the office will facilitate the necessary accommodations.

University Diversity Statement: Villanova University, as a Catholic Augustinian institution of higher education, recognizes diversity as an integral component of the teaching and learning experience and as an essential element of the ongoing intellectual, social and spiritual development of every member of the Villanova community.
Accordingly, Villanova University will be a diverse community.  We commit ourselves to cultivating an academic environment marked by genuine curiosity about different perspectives, ardent receptivity to knowledge generated through intercultural connections and a genuine sensitivity to the variety of human experiences marked by domestic and global differences.

Resources: Successful people access support from others as needed. Villanova University has many supportive services that can help you as you strive to achieve your goals. I encourage you to reach out to me or make use of other resources on campus.

  • Your Professor
    Message me on Teams, e-mail me at, set up a zoom call, or stop by my office at Bartley 2085.

  • Librarians
    The Library staff assist students with critical and evaluative use of information. Furthermore, Course Reserve materials can be requested at the circulation desk on the first floor. Visit the library at Falvey Hall or call (610) 519-4270.

  • Learning Strategies
    Learning Support Services provides learning and study skills resources for all students who wish to enhance their academic experience in preparing to meet their educational goals.  These services include study skill workshops, study groups and homework help sessions for selected courses, academic coaching, accommodation support for students with disabilities, and study skills consultation. They are located in the Learning Commons in Falvey Suite 212 or call 610.519.5176.

  • Disability Counselors
    The Office of Disability Services (ODS) is the primary office at Villanova University with specialized knowledge and experience in physical disability issues.

  • Tutoring
    Several resources are available for students seeking support with a challenging course or to enhance achievement in areas in which the student already excels. Among others, the Writing Center and the Center for Speaking and Presentation are available to help you develop important skills that are part of your class assignments.

  • Counseling
    The University Counseling Center provides services that help students function optimally with regard to emotional, academic, social and psychological issues. The Center is well used by our student leaders and academically most talented students. For students who encounter a more difficult condition such as depression, anxiety, panic, or disordered eating, the staff is also experienced in diagnosis, crisis intervention, and treatment of these conditions. Visit at Room 206, Health Services Building or call (610) 519-4050.

  • Academic and Career Advisors
    The VSB advising team facilitates the exploration and development of academic and career goals, including advising on internships and study abroad opportunities, and empowers students to be responsible decision-makers and active participants in defining their futures. Visit at Bartley Hall 1054 or call (610) 519-5532.

  • Underrepresented students
    The Center for Access, Success and Achievement aims to recruit, retain, and graduate underrepresented, first generation, and Pell Eligible students through holistic support in a culturally diverse and academically excellent environment. Visit at Falvey Hall, Room 211 or call 610.519.4075.

  • International students
    The International Students Services Office provides assistance with Immigration rights and responsibilities, Educational, social and personal counseling, Cultural adjustment issues, and Campus and community activities. Visit at Connelly Center 2nd Floor or call 610.519.7827.

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