The course provides a thorough grounding in the theory and practice of financial derivatives and financial engineering. The emphasis is on the application of derivatives pricing and hedging methodology to equity and commodity derivatives.
This syllabus lists and describes the topics covered in this course. In a nutshell, the course aims to cover the basics in derivatives theory, and to apply them to financial securities and commodity markets, with an introduction to recent products in the equity and volatility derivative worlds. We review selected exercises and case studies based on current data in order to gain a better understanding of their practical usage. We also implement the models numerically in Excel and Matlab.
DETAILED PROGRAM OF THE COURSE
Lecture 1: Introduction to Derivatives. Forwards and futures.
1.1 Introduction to Derivatives
1.2 Mechanics of Futures Markets
1.3 Hedging Strategies with Futures
1.4 Interest Rates
1.5 Determination of Futures Prices
Lecture 2: Options and Binomial Trees
2.1 Mechanics of Options Markets
2.2 Properties of Stock Options
2.3 European and American Call and Put prices
2.4 Binomial Trees
2.5 Continuous Time Limit
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Lecture 3: Introduction to Continuous Time Stochastic Processes
3.1. The Markov Property
3.2. Wiener Processes
3.3. Ito Process
3.4. Ito´s Lemma
Lecture 4: Continuous Time Stochastic Processes
4.1 Martingale Property
4.2 Geometric Brownian Motion
4.3 The Lognormal Property
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Lecture 5: Black-Scholes-Merton. Options in a Continuous-Time Framework.
5.1 Derivation of Black-Scholes-Merton Differential equation
5.2 Black-Scholes pricing formulas
5.3 Options on stock indices, currencies, and futures
5.4 Options as Volatility Instruments
5.5 Volatility term structure and volatility smile
5.6 The VIX index and volatility derivatives
Lecture 6: The Greeks and Their Uses
6.1 Naked, Covered Positions and Stop-Loss
6.2 Delta and Delta hedging
6.3 Gamma
6.4 Vega
6.5 Theta and Rho
6.6 Trading Strategies and Risk Management