Students will work with Excel. They will be asked to solve different problems during the course. Firstly, they will have to price interest rate options and swaps. The second practical exercise will be to price exotic path-dependent options using Monte Carlo simulation. Students will be asked to price barrier options, lookback options and/or Asian options and comparing the results with Black-Scholes framework formulas. A third activity will be the design of a real structured product (a guarantee investment fund really offered by an investment company). To this end, the students will have to combine and price different path-independent options (digital options, asset-or-nothing options, gap options, etc.) with standard options.
Students will be allowed to work on these activities alone, although it will be encouraged to work in small teams (2 or 3 people). Previously to each activity, the professor will explain in class the theoretical background needed to perform each task and will provide hints to work on the activities in an efficient way. After handing-in each exercise, in a weekly basis, it will be discussed in class the difficulties that students have found to do the activity and the correct way to do it.