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Derivatives across Asset Classes: Valuation and Hedging

Overview

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

Module description

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.

Learning objectives

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.