Applied Derivatives
Code
2247
Academic unit
null
Department
null
Credits
null
Teacher in charge
João Pedro Vidal Nunes
Teaching language
Objectives
Structured securities allow retail investors to take a (covered) position on the performance of (almost) any underlying asset, and are becoming increasing popular in Europe and in the US. However, the non‐traditional (and complex) payoffs offered by such structured products are often based on portfolios of non‐standard (i.e. exotic) financial options.
This course is devoted to the pricing of exotic options and structured products, under the usual Black‐Scholes‐Merton assumptions. After describing each structured product, the valuation of the embedded exotic options will be discussed, and the issuers hedging strategy will be defined. Special attention is devoted to the analysis of path‐dependent options. The first lecture will cover the relevant stochastic calculus pre‐requisites as well as a revision of the Black‐Scholes‐Merton model.
Prerequisites
Subject matter
Bibliography
Briys, E., M. Bellalah, H. M. Mai and F. De Varenne, Options, Futures, and Exotic Derivatives, Wiley, 1998
‐ Hull, John C., Options, Futures, and Other Derivative Securities, Prentice Hall, 9th edition, 2014.
‐ Zhang, P., Exotic Options: A Guide to Second Generation Options, World Scientific, 1998, 2nd edition.
Other resources: Class handouts and exercises.
Teaching method
The student should acquire analytical, information gathering, written and oral communication skills, through the following learning methodologies:
1. Expositional, to the presentation of the theoretical reference frameworks and valuation models;
2. Participative, through the analysis and resolution of real‐life exercises based on traded structured products and on financial data collected from the Bloomberg system;
3. Active, through the delivery of individual and group homework;
4. Self‐study, via the autonomous work undertaken by the student.
Evaluation method
The final grade of any student attending this course will correspond to the weighted average between the following three components:
‐ One individual, mandatory, and open book written exam (70%);
‐ One individual homework (10%);
‐ One group assessment case comprising the evaluation of a structured product (20%).