Delivered at:: International College of Economics and Finance

Course type:: Elective course

When:: 2 year, 1 module

Instructor

Makarov, Dmitry

Full Syllabus

Abstract

Part of Dmitry Makarov. 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.Part of Veronika Chistotinova. Pre-requisites:Profound knowledge in economics and finance is appreciated (time value of money, CAPM, probability theory, bonds, equities, main risks associated with financial products).Basic skills of Python programming are welcomed.Abstract:This course is aimed at students who want to pursue career in financial industry and seek for practical side of known theoretical concepts. Objective of the course is to provide well-grounded overview of derivatives pricing and dealing in modern financial markets. Main focus is to familiarize students with market infrastructure as a system, institutions involved into derivatives business and instruments features. During the course students will learn important and practical concepts of derivatives trading. This is vital for the graduates because anyone new to the industry is expected to be up-to-speed within months if not weeks, of starting out. The course is based on lectures, seminars, team work and self-study.

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.
practical approach to derivatives valuation, hedging strategies construction skills, trading life hacks learning

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

home assignment 1
practitioner's home assignment
Home assignment may include individual or group case studies that will comprise aspects learnt during the course.
Exam
home assignment 2

Interim Assessment

2024/2025 1st module
0.55 * Exam + 0.1 * home assignment 1 + 0.1 * home assignment 2 + 0.25 * practitioner's home assignment

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

Authors

CHISTOTINOVA VERONIKA ANDREEVNA
MAKAROV DMITRIY SERGEEVICH

Master’s Programme 'Financial Economics'

Derivatives