FE620 Pricing and Hedging
Course Catalog Description
The course will give an introduction to the financial markets for equity, FX, interest rates, commodities and credit, and their derivatives.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.
Dan Pirjol (A,WS)
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.
John Hull, Options, Futures and Other Derivatives. 11th Edition, Pearson.
Sections from the required text, as indicated for each class.
Additional Readings: Additional readings will be provided, as needed.
|Week 1||Class logistics and introduction to financial markets||Ch. 1|
|Week 2||Interest rates and bonds||Ch. 4.1 - 4.11||HW1 Posted
(due Sep 30)
|Week 3||Swaps and FX
Interest rate and cross currency swaps
|Week 4||Future and forwards||Ch. 5,6||HW1 Due, HW2 Posted
(due Oct 14)
|Week 5||Default and credit risk
Credit default swaps
|Week 6||Options: General properties
Put call parity
|Ch. 10,11||Hw2 Due, Hw3 posted
(due Oct 28)
|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 Oct 28
Hw 4 Posted
Proj. Proposal Due Oct 28
|Week 9||Greeks: Δ, Γ||Ch. 19,20|
|Week 10||Basic Numerical Procedures, Trees, MC, PDEs||Ch. 21||HW4 due Nov 11
(due Dec 2)
|Week 11||Incomplete markets and risk measurement||Ch. 22|
|Week 12||Commodities||Ch. 35||Hw5 due Due 2|
|Week 13||Project Work|
|Week 14||Project Presentations||Project due Dec 16|