Derivatives across Asset Classes: Valuation and Hedging

• Credit value: 15 credits at Level 7
• Convenor and tutor: Professor Helyette Geman
• Assessment: a two-hour examination (75%) and coursework (25%)

This module explains the concept of primitive assets and risk premium embedded in their price; the notion of complete markets; forwards and futures as linear derivatives and their central role in equities, FX and commodities. You will explore the famous Black-Scholes-Merton model using a change of probability measure, review fundamentals on interest rates and extend the major option pricing formulas to stochastic interest rates. You will also study interest rates - caps, floors, swaptions - and the fundamentals of international finance and the Garman-Kohlhagen formula.

By the end of this module, you should be able to:

• understand advanced techniques related to derivatives
• work in trading or sales activities of derivative instruments, as well as risk management and model validation.