Volume 30 CONTENTS Fall 2004
#1 - An Assessment Tool for Finance Students: Methodology and Implications
James C. Hall and Kevin Wynn
AACSB-International and the regional accrediting associations have made "assurance of learning" or assessment a central focus of their standards. This paper develops a methodology for assessing core information that a senior graduating from a BBA program in Finance at an AACSB accredited university should have mastered. The study contributes to the academic literature by providing an assessment instrument to evaluate undergraduate finance students’ competency in the application of core finance concepts – corporate finance, investments, and international finance. A panel of finance faculty members and a student focus group helped refine the assessment instrument, which was then administered to a group of 24 undergraduate finance students who had completed their major. Even though the sample is small, findings on demographic and course characteristics are consistent with much of the literature related to the relationship of QPA, gender, age, and transfer status to student performance.
#2 - Effect of Rigorous Prerequisite
Enforcement on Quantitative Skills Outcomes
Assessed at a Regional University
Robert E. Pritchard, Michael S. Saccucci, Gregory C. Potter and William W. Jennings
The results of implementing a rigorous prerequisite enforcement program on quantitative (basic algebra skills) outcomes in Principles of Finance (Principles) are examined and then related to student performance in Principles. The enforcement resulted in many students who had not completed quantitative prerequisites either dropping voluntarily or being removed administratively from Principles. As a consequence of their removal, outcomes assessment revealed statistically significant improvement in their abilities 1) to solve problems involving linear algebra (one equation and one unknown), 2) to solve problems involving descriptive statistics, and 3) to graph linear relationships related to finance.
#3 - Interest Rate Parity in Exel
Tom Arnold and Bonnie Buchanan
This paper develops interest rate parity in a framework that is easily implemented in Excel. The student can either be given the paper to see how the code is developed using the intuition of the interest rate parity framework or the student can be taught the interest rate parity framework and develop the Excel code as an assignment. Using either teaching method or the other exercises suggested in the paper, the student is able to understand how traders exploit violations of interest parity and become more comfortable with basic concepts, such as, direct quotes and indirect quotes.
#4 - Preparing and Delivering a Course in Real Options Analysis
There has been a recent explosion in the number of articles and books written about real option analysis. Although much has been written about real options, the application of real option analysis has not been widespread because of the perceived difficulty in applying the various models. In an attempt to help overcome this problem, we developed and delivered an applied course on real option analysis to our graduate students. I am convinced that the benefits of teaching this course are significant in advancing the careers of our students and faculty, and the reputation of the university. The purpose of this paper is to encourage other faculty members to exercise their option of developing a course on real options analysis by providing some help in preparing and delivering the course.
#5 - The Arbitrage Trading Game for Use in Capital Markets Instructions
Trading room simulations at most universities emphasize basic understanding of the trade execution mechanisms of the listed stock markets. Student managed funds focus on the investment selection process through fundamental equity analysis and diversification. The Arbitrage Trading Game instead provides an interactive way for students to learn the economic tenets of relative value arbitrage that drive most of the activity in today’s global institutional marketplace. It draws on the fundamental no-arbitrage conditions that link fixed income, currency and equity markets. It offers, in a classroom setting, a realistic experience of an institutional trader.
#6 - Pricing Path Dependent Exotic Options Using Monte Carlo Simulations
Sudhakar S. Raju
This paper illustrates the manner in which two path dependent exotic options (Asian and Fixed Strike Lookback options) can be valued using Monte Carlo simulations on Excel. Though Excel is not a particularly effective tool for sophisticated option valuation, it is an extremely effective teaching tool for illustrating complex concepts like Monte Carlo applications to exotic option valuation. By allowing students to build a complete program from basic theoretical principles, Excel provides a powerful and effective tool for understanding the theory and techniques underlying exotic option valuation.
#7 - Case Study: Enron Red Flags
Hugh Grove, Tom Cook and Jon Goodwin