Course Catalog Description

Introduction

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.

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
Vasilis Katsikiotis	vkatsiki@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. 11th 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

		Weights
1	Class Participation	5%
2	Homework	35%
3	Project	30%
4	Exam	30%

Lecture Outline

	Topic	Reading	Assignments
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	Ch. 7
Week 4	Futures and forwards	Ch. 5,6	HW1 Due, HW2 Posted (due Oct 14)
Week 5	Default and credit risk Credit default swaps	Ch. 24.1-24.5 Ch. 25.1-25.2	Team formation Oct 7
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, Brownian 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, ν	Ch. 19,20
Week 10	Basic Numerical Procedures, Trees, MC, PDEs	Ch. 21	HW4 due Nov 11 HW5 posted (due Dec 2)
Week 11	Incomplete markets and risk measurement	Ch. 22
Week 12	Introduction to Commodities Markets and Commodity Derivatives	Ch. 35	Hw5 due Due 2
Week 13	Project Work
Week 14	Project Presentations		Project due Dec 16