Master
2021/2022
Derivatives
Type:
Elective course (Financial Economics)
Area of studies:
Economics
Delivered by:
International College of Economics and Finance
When:
2 year, 1 module
Mode of studies:
offline
Open to:
students of one campus
Master’s programme:
Financial Economics
Language:
English
ECTS credits:
3
Contact hours:
28
Course Syllabus
Abstract
Prerequisites: Financial Economics I, Intermediate Calculus, Probability Theory, Mathematical Statistics The course examines fundamental topics and approaches in derivative pricing. It is quantitatively oriented and requires some background in calculus and statistics. Derivative financial instruments are those instruments whose value is “derived” from the value of some underlying asset or assets. Our goal is to learn how to price such instruments using a no-arbitrage principle, and how to hedge them. The course will be particularly relevant to students interested in financial markets, securities trading and structured products development involving derivatives.
Learning Objectives
- The objective of the course is to undertake a rigorous study of derivative financial instruments. The course is aimed at introducing students to:
- o key concepts of derivative markets, such as underlying security, replication, no arbitrage, as well as main types of derivative instruments;
- o ways of option pricing both in discrete and continuous time;
- o approaches to pricing with multiple sources of uncertainty, etc.
Expected Learning Outcomes
- be able to use difference between conversion factors for calculations
- apply Structural and reduced-form approach to credit risk modelling to calculate default probabilities
- calculate returns on particular structured products
- construct a replicating portfolio
- distinguish between main derivative instruments and different types of options.
- do bond hedging with bond futures
- explain main differences between the different types derivatives and understand their nature, outline how the OTC derivatives work.
- find an option price through binomial pricing.
- find an option price under multiple sources of uncertainty.
- find an option price using Black-Scholes approach.
- to construct swap contract for a given position of a firm
Course Contents
- Fundamentals of derivative pricing: Overview
- Option pricing: static and discrete-time analysis
- Option pricing in continuous time
- Pricing with multiple sources of uncertainty
- Structural and reduced-form models of credit risk
- Exchange-based and OTC derivatives
- Options and an introduction to Structured Certificates
- Short Term interest Rates and Bonds
- Swaps
- Structured Equity Products
Assessment Elements
- ExamThe final exam is in a written form, and it includes problems based on the material of the whole course. The final exam is a blocking element of the course, meaning that getting less than 35% of the final exam score (as well as getting less than 35% of the total course score) leads to a failing total grade.
- home assignment 1
- home assignment 2
Interim Assessment
- 2021/2022 1st module0.15 * home assignment 1 + 0.15 * home assignment 2 + 0.7 * Exam
Bibliography
Recommended Core Bibliography
- 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
Recommended Additional Bibliography
- 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