Derivatives

Course description

The course introduces basic principles of mathematical modeling of specific financial assets (derivatives) whose prices are related to another (underlying) asset. The students will learn the specifics of the main types of derivatives and their use in hedging operations. The students will master adaptation of mathematical models of underlying assets price dynamics to determine fair (rational) value of derivatives and study sensitivity of these value estimates to changes in the parameters of the underlying model. The students will also learn to recognize arbitrage opportunities when parities are broken.

Literature

• Hull J. C. Options, Futures and other Derivatives. 5th ed. Upper Saddle River, N.J.: Prentice-Hall, 2003.
• Kijima M. Stochastic Processes with Applications to Finance. Boca Raton, FL; London; New York: Chapman & Hall/CRC, 2003.
• Ma C. Advanced Asset Pricing Theory. London: Imperial College Press, 2011.
• Shreve S. E. Stochastic Calculus for Finance. New York: Springer, 2004.