Quantitative Finance and Insurance

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. Lab sessions for application of the theory (Excel based) are included. 

 Ability to evaluate and hedge the main derivative contracts on stock markets.

 lectures + lab

 

The final grade is a weighted average of the grades (if greater or equal to 18) obtained from Prof. Kenett's and Prof. Luciano's part. The weights are 16/72, 56/72, the number of hours of each part. Students enrolled in the course before the ay 2018/19 are allowed to take only Prof. Luciano's exam. They express the will to take also the other part by taking the corresponding exam. Prof. Kenett's exam will take place at the end of his course, once and once only (no other sessions).

 

lab

 

First part:

• Valuation
• 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

3. Module by Professor Ron Kenett
4. Credit and counterparty risk

• Option theory in order to evaluate credit risk
• Intensity-based models

B. Dumas, E.Luciano, The Economics of Continuous-time Finance, MIT Press, 2017.

https://mitpress.mit.edu/books/economics-continuous-time-finance

You can find an updated version of lectures timetable in the section "Materiali didattici".