FE620 Pricing and Hedging
Course Catalog Description
Introduction
The course will give an introduction to the financial markets for equity, FX, interest rates, and credit products and derivative. The course will focus on the valuation and risks of the main traded products, introducing the risk neutral pricing approach for derivatives valuation and hedging.
Campus | Fall | Spring | Summer |
---|---|---|---|
On Campus | X | X | |
Web Campus | X | X | X |
Instructors
Professor | Office | |
---|---|---|
Dan Pirjol (A,WS)
|
dpirjol@stevens.edu | Babbio 303a |
Zachary Feinstein (B)
|
zfeinste@stevens.edu | Babbio 628 |
Dongxu Li (A, WS) - Teaching Assistant
|
dli36@stevens.edu | |
Yunfan Zhu (B) - Teaching Assistant
|
yzhu25@stevens.edu |
More Information
Course Outcomes
After successful completion of this course, students will:
- Be familiar with the concepts of yield curve, credit risk, currency exchange rates, and with the main contracts linked to the interest rates, FX and credit traded in markets.
- Understand the risk-neutral approach to pricing derivatives, and be able to apply it to pricing forwards, futures and options.
- Be familiar with European and American options and their Greeks.
- Understand how to hedge the main risks of a financial derivative and of a portfolio of derivatives.
Course Resources
Textbook
John Hull, Options, Futures and Other Derivatives. 10th Edition, Pearson.
Additional References
Sections from the required text, as indicated for each class.
Additional Readings: Additional readings will be provided, as needed.
Grading
Grading Policies
Class Participation 5%
Homework 35%
Project - Teamwork (points can be
subtracted for lack of teamwork)30%
Final Exam 30%
Homework 35%
Project - Teamwork (points can be
subtracted for lack of teamwork)30%
Final Exam 30%
Lecture Outline
Topic | Reading | Assignments | |
---|---|---|---|
Week 1 | Class logistics and introduction to financial markets | Chapter 1 | |
Week 2 | Interest rates and bonds | Ch 4.1 - 4.11 | Hw1 Posted |
Week 3 | Default and Credit risk Credit Default Swaps | Ch 24.1- 24.5, Ch 25.1 - 25.2 | |
Week 4 | Swaps and FX Interest rate and cross currency swaps |
Ch 7 | HW1 Due, HW2 Posted |
Week 5 | Futureds and Forwards | Ch 5,6 | Team formation |
Week 6 | Options: General properties, Put call parity | Ch 10,11 | Hw2 Due, Hw3 posted |
Week 7 | option pricing - discrete time, Binomial tree, risk neutral pricing | Ch 13 | |
Week 8 | Option Pricing - Continous time, Brownion motion, geometric BM, Black Scholes Model | Ch 14, 15 | Hw3 Due, Hw 4 Posted, Proj. Proposal due |
Week 9 | Greeks | Ch 19,20 | |
Week 10 | Basic Numerical Procedures, Trees, MC, PDEs | Ch 21 | HW4 due, HW5 posted |
Week 11 | Incomplete markets and risk measurement | Ch 22 | |
Week 12 | Perpetual derivatives, derivatives regulation | Ch 37 | Hw5 due |
Week 13 | Project Work | ||
Week 14 | Project Presentations | Project due |