As you prepare for the Finance 4335 final exam you would do well to review key resources, including the Finance 4335 Course Overview, the Final exam formula sheet, and problem sets, class problems, and sample exams available on the course website. By now, I assume that my Finance 4335 students Understand how to calculate and rank order risks based on expected utility; Understand how to apply the standard normal and binomial probability functions; Comprehend that one is risk averse/risk neutral/risk seeking if the risk premium is positive/zero/negative; are aware that the risk premium can be ..read more

I will be available for virtual office hours for Finance 4335 on Wednesday, May 6, from 3-5 pm. To join, enter “zoom.garven.com” in your web browser’s address field. If you need to schedule a different time during finals week, feel free to text your request for a meeting at 254-307-1317 ..read more

As we wind down the spring semester in Finance 4335, here’s a friendly reminder for Finance 4335. There is one more problem set left for Finance 4335, which is Problem Set 10 (Corporate Risk Management), and it is due via Canvas before the start of tomorrow’s class meeting. However, completing this problem set is optional. If you choose to complete and turn it in via Canvas, the grade you earn on it will replace your lowest problem set grade for the semester, provided its grade is higher than your lowest grade received on Problem Sets 1-9 ..read more

… are available at http://fin4335.garven.com/spring2024/ps9solutions.pdf ..read more

During today’s Finance 4335 class meeting, the logic behind the so-called underinvestment problem (where, in the absence of risk management, it may be “rational” to reject a positive net present value investment project) is explained in the How Insurance Solves the Underinvestment Problem assigned reading. That assigned reading is an unpublished appendix based on the following published (peer-reviewed) journal article: Garven, James R. and Richard D. MacMinn, 1993, “The Underinvestment Problem, Bond Covenants, and Insurance,” Journal of Risk and Insurance, Vol. 60, No. 4 (December ..read more

I have extended the deadline for Problem Set 9 from tomorrow (Thursday, April 25) to Tuesday, April 30. This decision was inspired by a question from a Finance 4335 student, which also led me to publish a related blog post earlier today titled "Pricing Credit Risk Class Problem and Solutions…". In tomorrow’s Finance 4335 class, we will begin by reviewing the solutions for the first part of the class problem included in the above-referenced blog post (also previously covered during last Thursday’s class meeting). We will complete our discussion of the credit risk topic by covering the second pa ..read more

… are available at http://fin4335.garven.com/spring2024/ps8solutions.pdf ..read more

Class Problem: http://fin4335.garven.com/spring2024/creditriskproblem.pdf Solutions: http://fin4335.garven.com/spring2024/creditrisksolutions.pdf ..read more

Here are some helpful hints to consider for Problems 1 and 2 on Problem Set 8 (Problem Set 8 is due by 11 am this Tuesday): Problem 1, Part A: Since the call option described in Problem 1, Part A is initially out-of-the-money (i.e., since S = $18 and K = $20), there will be terminal nodes at which the call option expires in-the-money and others at which it expires out-of-the-money.  By solving the equation and rounding to the nearest integer greater than b (referred to in the CRR equation below as the parameter “a“), this indicates the minimum number of up moves required such that this ..read more

… are available at http://fin4335.garven.com/spring2024/ps7solutions.pdf ..read more