Integrating Financial Software in Derivatives Courses

Primary Goals Apply concepts and theory to real markets Provide hands on experience with financial software

Integration Techniques: Team projects / homework assignments / Quizzes

Structures Futures / Options / Swaps

Markets Equities / Fixed Income / Currencies / Commodities

Financial Data Providers - Villanova Bloomberg / FACTSET / TD Ameritrade (Think or Swim)

Homework and Quizzes

Treasure hunt approach - with analysis required Find information using financial software Use information to answer questions or do analysis

Example questions What were the spot price and the 6 most nearby futures prices of

WTI Crude Oil on 8/7/13? Based on these prices, is the market in contango or backwardation? Based on the September and October futures prices, and assuming

transportation and storage costs are $.50/bbl and interest rates are at 5%, is there an arbitrage opportunity? Students should consider formula F0 ≤ (S0+U )erT from Hull text

Would your answer change if WTI Crude was widely held as an investment asset instead of a consumption asset? If so, why?

Crude Oil Futures Contract Table

Crude Oil Backwardation - History

Option Model – Crude Oil

Team Project Example

Project based on equity options Students are given $100k paper money Student teams are assigned a stock Teams develop an options strategy They must follow rules and guidelines Strategy is evaluated upon entry and exit Analysis of Option risk elements (Greeks) is done Most profitable Team during the project – bonus See Project Document and Spreadsheet - Details

Linking Bloomberg to Excel

Use the Bloomberg Add-In for exporting to Excel Or you can use the export to excel option in Bloomberg

Have Bloomberg open when pulling data Click Bloomberg Toolbar in Excel Click Navigation button Select a ticker symbol and enter in the field provided Click on “Options” Click on “Options Monitor” Click and hold the “Drag to Excel” icon – drag into

spreadsheet

Sample Options Monitor - MCD

Sample Bloomberg Link to Excel

Example CDS – McDonald’s (MCD)

Example MCD - CDS

MCD CDS Curve

Summary

The Ultimate goal is to enhance learning Exposure to systems actually used in financial

markets Increase motivation and learning through:

Competition for bragging rights and bonus points Student belief that what your teaching is relevant Bringing the theory to practice - making it real Charting and graphing provide better conceptual teaching