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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 occasion.

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Course Syllabus
This document contains our lecture schedule, as well as an outline of topics you should be reading in your textbook outside of class.

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Course Syllabus for Fall 2018 (pdf)
 

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*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 class.  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. 405-423.
 
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Link to Swaps Chapter


You may need to download Acrobat Reader to view the following articles.
 
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Article 1
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.

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Gay, Gerald D., "Scams, Scoundrels and Scapegoats: A Taxonomy of CEA Regulation over Derivative Instruments." (with Wendy L. Gramm), Journal of Derivatives 1 (Spring 1994): 6-24.

 

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Article 2
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' underinvestment problems.

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Gay, Gerald D., "The Underinvestment Problem and Corporate Derivatives Use." (with Jouahn Nam), Financial Management 27 (Winter 1998): 53-69.

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Article 3
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. 

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Gay, Gerald D., "Asymmetric Information and Corporate Derivatives Use" (with Peter DaDalt and Jouahn Nam), Journal of Futures Markets (March 2002).

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Article 4
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 practices.  The published version of this working paper can be found in: 

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Gay, Gerald D., "How Firms Manage Risk: The Optimal Mix of Linear and Non-Linear Derivatives" (with Jouahn Nam and Marian Turac), Journal of Applied Corporate Finance (Winter 2002).

 
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Article 5
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.

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Gay, Gerald D., "The Global Market for OTC Derivatives: An Analysis of Dealer Holdings" (with Ekaterina E. Emm), Journal of Futures Markets (January 2005).

 

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Article 6
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.

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Gay, Gerald D., "Choices and Best Practice in Corporate Risk Management" (with Ekaterina E. Emm and Chen-Miao Lin), Journal of Applied Corporate Finance (Fall 2007).

 

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Article 7
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.

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Gay, Gerald D., "Corporate Derivatives Use and the Cost of Equity" (with Chen-Miao Lin and Stephen D. Smith), Journal of Banking and Finance (June 2011).

 

 

 

 

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This page was last modified on August 28, 2018
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