Quantitative Finance and Insurance

Derivatives

Derivatives

Academic year 2013/2014

Sommario del corso

• Course objectives
• Results of learning outcomes
• Learning assessment methods
• Program
• Suggested textbooks and readings
• Notes
• Teaching tools

Course objectives

The course aims at presenting the main valuation and hedging techniques for derivatives, mainly futures and options. It covers both derivatives traded in regulated markets and OTC ones; special emphasis is given to counterparty risk.

Results of learning outcomes

Students are expected to understand - and be able to apply - the main principles of derivatives valuation and hedging. Lab sessions  (Excel based) are included

Learning assessment methods

solo scritto

Program

First part: from Financial Economics to Financial Mathematics

-       The portfolio problem

-       Absence of arbitrage and equilibrium

-       Valuation in complete and incomplete markets

-       Arrow Debreu prices

-       Kernels

-       Risk neutral Probabilities

-         Fundamental pricing Theorem

-         Its use for derivative assets

Second part: applications (theory and computer lab):

1. Futures
2.  European Options:

-         Pricing, Black Scholes

-         Hedging: naked and covered positions,  stop-loss strategies, delta and gamma hedging in  discrete and continuous time

-         Hedging errors and valuation of hedging strategies

2. Counterparty risk

Students are expected to be familiar with the topics covered in

Calcolo finanziario. Temi di base e temi moderni, with M. D’Amico and L. Peccati, EGEA, Milano, 2010 (reprinted 2011).

The textbook is

Jarrow, R:, Turnbull, S., Derivative Securities, South Western Publishing, 1996 (1^st ed.) or 1999 (2^nd edition): http://www.amazon.com/Derivative-Securities-Robert-Jarrow/dp/0538877405

Note

• Teaching materials
• Exams and finals
• Go to Moodle
• Visit the forums