You will find below the course syllabus along with copies of articles and
a *SWAP* pricing and valuation spreadsheet that you will be referred to on
This document contains our lecture schedule, as well as an outline of topics you should be
reading in your textbook outside of class.
*SWAP* - This is an Excel spreadsheet designed for the
pricing and valuation of swaps. It is designed so that students
will utilize actual market data. It currently is loaded with market data from
October 17, 2017 but it will easily accommodate and automatically adjust to any date
and data that a user chooses to use including examples we will look at in
Before using, be sure to first check for and set on your computer the
required system requirements to receive the full benefits. Also, to
accompany the software, I have provided a link to a book chapter that I
coauthored that provides an overview to the pricing and valuation of
interest rate, currency, and commodity swaps.
Link to *SWAP* software
"The Pricing and
Valuation of Swaps" (Gerald D. Gay and Anand Venkateswaran), published in Financial Derivatives: Pricing and Risk Management, editors Robert W.
Kolb and James A. Overdahl, John Wiley & Sons, Ltd., 2010, Chapter 28, pp.
may need to download Acrobat Reader to view the following articles.
This article will familiarize you with the regulatory landscape
for derivatives. It will also introduce you to the forward versus
futures contract debate and provide a historic look at the CFTC/SEC turf
wars and its resulting effect on innovation.
This article builds on issues we address during the first lecture related
to channels through which corporate hedging can enhance firm value.
Emphasis is on how derivatives usage can serve to mitigate firms'
This article focuses on an somewhat overlooked aspect of derivatives
usage--its ability to reduce a firm's information asymmetry as relates to
its earnings performance. By reducing the noise in earnings
contributed by macroeconomic factors such as exchange rates and interest
rates, and that are generally believed to be outside of managers' control,
hedging can present shareholders with a more informative picture of a firm's
true earnings capacity and the quality of its managers.
There are many books and articles explaining how firms should hedge with
linear derivatives like futures, forwards and swaps. Other articles
look at how to hedge with non-linear derivatives such as options. But
we found that there was little to no guidance on how managers should choose the optimal mix of linear and non-linear derivatives.
We attempt to address this void and also provide some interesting anecdotal
and empirical support for our hypotheses taken from actual corporate
The published version of this working paper can be found in:
This paper examines the trading activities of one of the most important
intermediaries in global financial markets--the OTC derivatives
dealer. We analyze the derivatives holdings of 264 dealers spanning 34
countries over the period 1995-2001. We document the geographic composition
of dealers on both country and regional levels as well as analyze trends in
dealer holdings on an aggregate and individual product level. We further
analyze the extent of global merger activity among dealers and resulting
consolidation effects. We also
investigate at the individual dealer level the extent and evolution of their
array of product offerings.
Public U.S. companies are required by the SEC to disclose key information
about their risk management practices in their 10-Ks regarding their
exposures to fluctuations in variables such as interest rates, foreign
exchange, and commodity prices. While disclosure is mandatory,
companies have discretion to choose among three alternative methods:
sensitivity analysis, value-at-risk (VaR) and tabular. For the
universe of S&P 1500 firms, we investigate how both firm-specific and
industry-level characteristics work together to shape their choices of
disclosure method. Our analysis is guided by the recognition that
disclosure entails significant costs as well as benefits and that corporate
managers should, and typically do, strive to select the method that is best
for its shareholders and maximizes firm value.
We investigate the relation between corporations' derivatives use and their
cost of equity capital. Using a large sample of non-financial firms, we
compute and analyze (i) the relative cost of equity of firms that use
derivatives and those that do not; and (ii) the change in cost of equity
experienced by firms initiating derivatives programs. We find that the cost
of equity of derivatives users is lower than non-users by 24-78 basis
points. We further find that the reduction in the cost of equity is attributable to both lower market beta and SMB beta, suggesting that firms
use derivatives to reduce their financial distress risk and that this
distress risk has a systematic component that is priced in the market.