Derivatives
Code
2218
Academic unit
null
Department
null
Credits
3,5
Teacher in charge
João Manuel Gonçalves Amaro de Matos
Teaching language
English
Objectives
The objective of this course is to start from basic concepts of derivatives and develop an understanding of the role and practical use of options as financial instruments, especially in the context of Corporate Finance.
The course discusses hedging and pricing of options using both the discrete and continuous‐time (Black and Scholes approach). We then relate these techniques to corporate finance applications such as the valuation of investment opportunities, as well as the design of corporate debt instruments. In order to follow this course students are assumed to have attended previously either a course of Investments or an introductory course on Futures and Options.
Prerequisites
Subject matter
1st class: State Prices and Derivatives Valuation: Recovering the Binomial Model;
2nd class: Valuing Options with Stochastic Volatility and Term Structure of Interest Rates;
3rd class: Valuing Options in N periods and the Continuous‐Time Limit;
4th class: Valuing American Options and Options on Dividend‐Paying Assets;
5th class: The Black‐Scholes Model and its Properties;
6th class: Equity and Corporate Debt Representations as Options;
7th class: Real Options;
8th class: Dynamic Delta Hedging and the Greeks;
9th class: Principles of Simulation;
10th class: Exotic Options;
11th class: Discrete‐Time Models for Options on Interest Rates;
12th class: Structured Products.
Bibliography
John Hull, Options, Futures, and Other Derivatives, Prentice‐Hall, Englewood Cliffs, New Jersey, U.S.A. 8th edition, 2012. Class Notes will be provided in advance.
Teaching method
The teaching method is based on lectures, 2 per week. Students are required to solve online a list of exercises every week regarding the topics discussed in class during that week. At the end there is an applied case study to be solved, where students should make use of the material of the course. A final and short comprehensive exam is made at the end.
Evaluation method
-Weekly online exercises: (average grade E)
-Case Studies (grade C)
-Final exam (grade F)
-Final grade will be 0.5F+0.3+0.2E