- At the conclusion of the course, the students are expected to acquire the following skills: Ability to create new theories, invent new ways and tools of professional activity.
- Ability to analyze, verify, evaluate the completeness of information in the course of professional activities, if necessary, to fill and synthesize the missing information.
- Ability to develop strategies for the behavior of economic agents in different markets
- Ability to present the results of the study to the scientific community in the form of an article or report
- Ability to carry out applied and / or fundamental research, using advanced methods of economic analysis, including instrumental
- distinguish between main derivative instruments and different types of options.
- find an option price through binomial pricing.
- find an option price using Black-Scholes approach.
- find an option price under multiple sources of uncertainty.
- apply Structural and reduced-form approach to credit risk modelling to calculate default probabilities
- explain main differences between the different types derivatives and understand their nature, outline how the OTC derivatives work.
- construct a replicating portfolio
- do bond hedging with bond futures
- be able to use difference between conversion factors for calculations
- to construct swap contract for a given position of a firm
- calculate returns on particular structured products
- Fundamentals of derivative pricing: OverviewHistorical background and milestones in the development of derivative markets Key concepts: replication, underlying security, no arbitrage, relative versus absolute pricing Popular derivative instruments: forwards, futures, options
- Option pricing: static and discrete-time analysisNo arbitrage bounds on option prices. Types of options: European, American, Bermudan, Asian, etc. Binomial option pricing models: building binomial trees, pricing on the tree, risk neutral tree probabilities
- Option pricing in continuous timeMathematics of option pricing: Brownian motion, Ito’s processes, Ito’s lemma, partial differential equations, martingale approach Pricing and replication in continuous time, Black-Scholes formula, option greeks, Empirical evaluation of Black-Scholes formula, volatility smile
- Pricing with multiple sources of uncertaintyTraded and non-traded risks, stochastic volatility and stochastic interest rate models, market price of risk, pricing convertible bonds
- Structural and reduced-form models of credit riskDefaultable bonds, bond as an option, credit rating, risky yield curve
- Exchange-based and OTC derivativesExchange-based derivatives (ETDs): Futures and options – contract specifications, operational characteristics. Over-the-counter (OTC) derivatives: Forwards, Options. Hedging an equity portfolio with futures. Exchange Trade Funds (ETFs), Universal Stock futures (USFs and SSFs), speculation, arbitrage, ‘Chasing alpha’. Portfolio engineering using exchange-traded futures. OTC short term equity swaps (Contacts for Difference (CFD)). Option review.
- Options and an introduction to Structured CertificatesMarket links between options and futures. Structuring certificates using options. The impact of time on officially recognised strategies.
- Short Term interest Rates and BondsComparing FRAs and STIRs. Using STIR options and Interest Rate Guarantees to hedge single and multiple period exposures. Hedging using bond futures
- SwapsReview of plain vanilla interest rate swaps. Some variations on the basic interest rate swap. Asset swaps. Total return swaps. Credit default swaps.
- Structured Equity ProductsConstructing guaranteed principal products (GPP).
- testStudents who missed the test due to a valid reason are assigned an additional date to sit it.
- home assignments
- Hull, J. C. (2017). Options, Futures, and Other Derivatives, Global Edition. [Place of publication not identified]: Pearson. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=1538007
- Paul Wilmott. (2013). Paul Wilmott on Quantitative Finance. [N.p.]: Wiley. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=185503