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Instructors: Johannes Magnus Heuel; Prof. Dr. Alexander Szimayer
Event type:
Interactive class
Displayed in timetable as:
Hours per week:
3
Credits:
6,0
Language of instruction:
English
Min. | Max. participants:
- | 45
Comments/contents:
About the course
The course deals with options, futures contracts and other derivatives financial instruments. Firstly, the basics of forward and future contracts as well as their valuation by using the No-Arbitrage Principle are revised. This is followed by a short presentation of options and their valuation using the binomial model.
The focus is directed on the analysis of the Black-Scholes-Model for valuation of share options. In particular, the Black-Scholes-formula for valuing a call-option will be derived. For this purpose, the necessary knowledge of the Wiener process and stochastic integration is built up.
The sensitivities, the so-called Greeks, related to the pricing formulas, according to Black-Scholes, are discussed and their application in risk management is shown. Afterwards options on currencies, commodities and futures are discussed and invest rate derivatives and credit derivatives are introduced. Numerical valuation methods as for instance Monte-Carlo simulation are briefly discussed.
Learning objectives:
On completion of this course, you should be able to:
- value derivative contracts like futures, forwards and for deriving option price bounds using the no-arbitrage principle
- detect arbitrage opportunities
- apply risk-neutral valuation as a generic methodology for various setups including pricing of standard options (calls and puts), and exotic options
- grasp the derivation of the Black-Scholes option pricing model based on Brownian motion and Ito calculus
- hedge and manage option portfolios utilizing the Black-Scholes Greeks (sensitivities of the option price)
Didactic concept:
Course (3 + 0)
Literature:
John C. Hull, Options, Futures, and Other Derivatives (8th Ed.), Pearson
Jacque, Laurent L (2010): Global derivative debacles : from theory to malpractice, World Scientific
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