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1/25/06

1/25/06. Today. Take quiz and collect HW #1 Do the Google option example that is posted. New posting, a HW assignment from last semester – give it your best try – we will do on Friday More on options – writing options (naked vs covered)

jessenia-kianoush
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1/25/06

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  1. 1/25/06

  2. Today • Take quiz and collect HW #1 • Do the Google option example that is posted. • New posting, a HW assignment from last semester – give it your best try – we will do on Friday • More on options – writing options (naked vs covered) • What is meant by a zero sum game? Proving that the option market is a zero sum game! • Changing gears – wrap up some terms – the new economy – the cruise ship example re-visited. • Another new posting – Greenspan’s legacy article – a must read!

  3. Go over the Google example and draw a profit loss function associated with specific calls and specific puts (note, we assume away transactions costs)

  4. Discuss the idea of writing options – prove that the options market is a zero sum game

  5. On to the new economy! Some terms – draw cruise ship example again!

  6. Key terms/topics • OMO (open market operations) • FOMC (Federal Open Market Committee) • Beige Book • Policy Lags and forward looking behavior (two analogies – cruise ship ; driving a car) • Review of current state of affairs regarding actual fed behavior and the signals they are sending (Go Open Market Page)

  7. Key terms/topics (cont’d) • Board of Governors • The 12 Regional banks • Reserve Market (A Y2K example) • Reserves: Two types: 1) excess and required • Reserve Requirement Ratio • The Money Supply • The Federal Funds Rate • The Discount Rate • Interest rates: Short Term vs Long Term: Real vs Nominal • How monetary policy works!

  8. Key terms/topics (cont’d) • Fiscal policy • Monetary policy • NAIRU • Full employment • Potential growth rate of economy

  9. Key terms/topics (cont’d) • The Fed’s loss function • Exogenous shocks • Hawks vs doves • Overheating • The new economy • The Importance of Productivity • Speed limit of the economy • Traditional model

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