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 Email 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:

  1. 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.
  2. Understand the risk-neutral approach to pricing derivatives, and be able to apply it to pricing forwards, futures and options.
  3. Be familiar with European and American options and their Greeks.
  4. 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%

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