Videos for Economics of
Investments
The bulk of videos for this course are actually voice-over slides
covering material in the Coursepack. You can link to these videos from
the course Blackboard site. There are a number of videos and films to
which you can link from this page that might be helpful to you in this
course. Some of these are made by professionals, some by amateurs and
even a few starring myself. But, sadly, high-end popular educational
films in finance, especially derivatives, that gets film buffs all
abuzz really aren't particularly common.
Videos on Options and
Black Scholes
Some students in this course are likely not to have seen the
Black-Scholes model in prior classes. Here are two videos that I made
with Gianpiero Alicchio and Allegra Sappio of LUISS that introduce just
the non-technical basics of these topics. So, if you read about these
topics in the Coursepack and are having problems, start be having a
look at these videos. Bear in mind that I am based in New York, while
Gianpiero and Allegra are in Rome, so there are still a few minor
glitches in the videos. Partly because of these glitches, I recommend
that you see the notes below before or while you view the videos.
John Teall - The
Black-Scholes Options Pricing Model
https://vimeo.com/351000132/6a9d6fa53a
This
video introduces the important Black-Scholes Options Pricing Model to
the valuation of simple "plain vanilla" stock options, calls and puts.
|
The
following are notes that might be helpful to you when viewing the
video. I recommend pausing the video during the times listed in the far
left to pay attention to the notes towards the center and right:
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Time
|
S0
= 75
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X
= 80
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T = .5
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s2
= .16
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rf
= .10
|
s
= .4
|
c0
= ?
|
|
Underlying
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Exercise
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Expiration
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Underlying
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Riskless
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Underlying
|
Call
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1:24-1:27
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Price
|
Price
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Date
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Return
|
Return
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Standard
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Price
|
|
|
|
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Variance
|
Rate
|
Deviation
|
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2:16-22
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The
Black-Scholes Model is in the box on the right. We will fill in the
values from the left of the video into the box.
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2:22-33
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Starting
with the equation for d1, we fill in values, finding that d1
= 0.09. Then, we fill in values for d2, finding that d2
= -0.1928 (the equals sign before it is missing).
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2:43-2:53
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Next,
we get the N(d1) and N(d2) values from a z-table. Since
different z-tables handle areas to the left of the mean differently,
under the normal curve the value .5 might or might not be added or
subtracted from the value at the appropriate intersection of row and
column. But, each table will be consistent from example to example.
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2:58-3:06
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Now,
insert the N(d1) and N(d2) into the c0 equation
to complete the calculation.
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3:19-3:47
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Don't
stop the video. Instead, look at the following equation:
Also,
I
made a mistake at time = 3:26, saying "minus" when I should have said
"plus."
|
John Teall - Implied
Volatility
https://vimeo.com/351001396/65adcc8764
This
video applies the Black-Scholes Option Pricing Model to the calculation
of underlying stock (or asset) variances based on option (or equity)
market prices.
The
following are notes that might be helpful to you when viewing the
video. I recommend pausing the video during the times listed in the
left to pay attention to the notes towards the center and right:
2:49-3:17
|
T = .5
|
r = .10
|
c0 =
7.00
|
X = 80
|
S0 = 75
|
|
If
investors use the Black-Scholes Options Pricing Model to value calls,
the following should be expected:
|
|
3:21-3:32
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Just
compare what is written above to what is on the screen. Notice that the
calculated call price c0 = 7.958
> 7.00 is too high. We will need to try again with a lower standard
deviation
estimate.
|
Instructional Videos
that Correspond to our Derivatives Sessions
Running a course online through Zoom or Blackboard can be dreadful for
a lot of reasons. Students often find reading long dense pdf files
about banking to be even more dreadful. In an effort to make some part
of this material more palatable to students, I propose that you
consider watching a few fairly well-made films for some comic relief.
It is not essential that students view any of the following videos if
they are able to read and fully comprehend the Coursepack. The videos
just might be more enjoyable for some students and may make it easier
to fully understand the material in the Coursepack for some.
Unfortunately, the videos will certainly not cover all of the material
required for exam purposes. Some of the videos below are well-made and
entertaining, which might help students stick with their efforts a
little longer. In case problems arise due to your url, firewalls and
the like, multiple links are provided for most videos.
Trillion Dollar Bet (2000):
This documentary tells a story of the Black-Scholes-Merton options
pricing formula and the collapse of hedge fund Long-Term Capital
Management (LTCM). It includes interviews with Robert Merton and Myron
Scholes, who won the Nobel Prize in Economics in 1997. Some of the
stories involving academics are true, some are a little misleading.
Some are dead-on right, such as the story told by Paul Samuelson
concerning Louis Bachelier and the discussion of Itô
Calculus. The "dark side" stories of the narrator seem to reflect a
lack of knowledge trading and financial modeling, but no real harm
done, but many of the descriptions of basic options are pretty
good. The video omits discussion well-known and visually similar
formulas that existed at the time developed by Sprenkle and Samuelson.
The key insight of the Black-Scholes-Merton formulations is the dynamic
hedge ratio, as discussed in the film. There are striking similarities
between the failure of resolution of LTCM and the Financial Crisis of
2008. One insightful quote at the end, by Paul Samuelson, citing Albert
Einstein: "Elegance is for tailors." This would be a wonderful film for
the right finance course. Available for free, as of April 2020 at https://watchdocumentaries.com/trillion-dollar-bet/, https://docur.co/documentary/trillion-dollar-bet, https://archive.org/details/TrillionDollarBet
and https://vimeo.com/244903345.
Panic: The Untold Story of the 2008
Financial Crisis: Full VICE Special Report: Excellent HBO
documentary detailing the events leading up to the failure of Lehman
Brothers. Available on HBO-Go and, as of April 2020, available on
Youtube at https://www.youtube.com/watch?v=QozGSS7QY_U,
https://topdocumentaryfilms.com/panic-untold-story-2008-financial-crisis/,
https://www.youtube.com/watch?v=wyz79sd_SDA,
and https://www.forbes.com/sites/rogervaldez/2019/05/26/must-watch-the-untold-story-of-the-2008-financial-crisis/#6db2da982352.
Most of these web pages have a connection to Youtube.
Films and Videos that Might
be a Little Bit Instructional in a Derivatives Course, but Likely to be
More Entertaining
While many of the
films on this list were popular, their educational value might
questionable, or at least aren't quite relevant to our course.
Nevertheless, they might be more entertaining than the Coursepack. I
have not looked at films closer to the bottom of the list. All of these
films are available online somewhere, but many will probably require
some sort of subscription to view. Links to free sites are provided
where available.
Trading Places (1983): A rather
silly comedy starring Eddie Murphy that actually stands out among
popular films concerning finance and financial trading. While, for the
most part, the film is downright silly, it does include some dramatic
and even somewhat realistic depictions of a number of important
concepts crucial to traders. There were real parallels between actual
trading and the trading action in the film. It might be worth looking
online to list how others have listed some of the parallels between the
film and actual trading floors. Some observers have suggested that the
film was inspired by a real-life social experiment of trading partners
William Eckhardt and Richard Dennis, who sought to learn whether
successful trading could be taught.
The Ascent of Money (2008) In
this 6-part documentary, based on a book with the same title, Niall
Ferguson, author and academic, traces the evolution of money, bond
markets, insurance, bubbles, the subprime mortgage debacle, etc. A key
lesson from this video is the same as what historians regularly remind
us: This time is not so different; it has happened before — and
more than once. Has applications to Sessions 2 and 7. At least three of
the 6 parts are available through PBS online at https://www.pbs.org/video/the-ascent-of-money-part-1-from-bullion-to-bubbles/,
https://www.pbs.org/video/the-ascent-of-money-part-2-bonds-of-war/,
and https://www.pbs.org/video/the-ascent-of-money-part-3-risky-business/.
It appears that all 6 segments are available at https://www.youtube.com/watch?v=fsrtB5lp60s.
Floored (2009): A documentary
by the trader James Allen Smith is instructional and might be of
interest to students, but doesn't really intersect with material
covered in our particular course. This documentary concerns the decline
of the Chicago Trading Pits and traders' responses and efforts to adapt
to electronic trading.
Growth of the Finance Industry
(2019): Narrated by Philip Short, this 8-part series of 12-minute
segments chronicles the past 100 years of the development of Shanghai's
banking and financial industries. Free with Amazon Prime, and
approximately $6 for all 8 parts through Amazon (paid; free with Amazon
Prime) at https://www.amazon.com/Growth-Finance-Industry/dp/B07HFJHS6Z.
Inside Job (2010): Documentary
concerning the Financial Crisis of 2008.
Rogue Trader (1999): Acted
film based on Nick Leeson and Barings Bank.
The Big Short (2015)
In 2006-2007 a group of investors bet against the US mortgage market.
In their research they discover how flawed and corrupt the market is.
The Flaw (2011) 78 minute
analysis of the financial crisis
Updated 05/23/2022