20245 - ADVANCED DERIVATIVES
Department of Finance
Course taught in English
Go to class group/s: 31
Course Director:
CLAUDIO TEBALDI
CLAUDIO TEBALDI
Mission & Content Summary
MISSION
The course is aimed at gaining a more advanced knowledge of financial derivatives. In the first half of the course the basic principles of no arbitrage valuation are bridged with the trading practices of plain vanilla options and market volatility estimation and pricing. A central role is played by the explanation of the procedure which is currently applied to build a Volatility Index using a portfolio of quoted options. The notion of implied volatility surface and their dynamical evolution is introduced analyzing the class of local volatility market models. The second half of the course focuses on the Heston Stochastic Volatility Model (HSVM). A general pricing methodology for plain vanilla and exotic contracts are discussed. Then the HSVM is used to illustrate some practical applications of financial derivatives in investment banking and in the asset management industry. Computer sessions complement classroom activities.
CONTENT SUMMARY
- From theory to practice: pricing and trading option contracts.
- Market expectations, implied volatility and the volatility index.
- Local volatility modeling.
- The limits of the Black-Scholes model: stochastic volatility.
- Pricing in stochastic volatility models: a stochastic calculus approach.
- The Heston Stochastic Volatility Model (HSVM).
- Closed-form formulas in the HSVM Direct modelling of implied volatility evolution.
Intended Learning Outcomes (ILO)
KNOWLEDGE AND UNDERSTANDING
At the end of the course student will be able to...
- Analyze real market situations and select best derivative hedging and valuation policies.
APPLYING KNOWLEDGE AND UNDERSTANDING
At the end of the course student will be able to...
- Work out a formal quantitative valuation approach to the use of derivative products to asset management and general analysis of contingent claims market prices.
Teaching methods
- Face-to-face lectures
- Group assignments
DETAILS
Group assignment is necessary to improve the problem solving abilities of the students.
Assessment methods
Continuous assessment | Partial exams | General exam | |
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x | x | |
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x |
ATTENDING STUDENTS
Partial assignments and group assignment improve the problem solving and the efficiency of the grade assessment and lower the risk of a full final written exam.
NOT ATTENDING STUDENTS
Final written exam.
Teaching materials
ATTENDING AND NOT ATTENDING STUDENTS
Lecture Notes and Slides available on E-learning.
Further reading, we suggest a classical text-book on advanced option pricing:
- J. GATHERAL, The Volatility Surface: A Practitioner’s Guide, Wiley, 2006.
Last change 15/04/2019 12:50