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This course serves as a comprehensive introduction to
derivative securities. Forward contracts,
futures, options, and swaps are the focal point of the
course. While the main emphasis is on the use of
derivatives as risk-transferring/ minimizing devices,
valuations of such contracts are also included. In
addition to hedging strategies to be created by any of the
derivative securities, various trading strategies involving
options (spreads and combinations) are presented.
A solid coverage of no arbitrage based pricing is provided
as the common underlying premise to valuing derivative
securities. Cost-of-carry valuation of forwards
and futures, binomial pricing of options, dynamic
delta-hedging, the Black-Scholes option pricing formula,
basic numerical methods (such as Monte Carlo methods),
and swap pricing are introduced.
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