20541 - ADVANCED QUANTITATIVE METHODS FOR ASSET PRICING AND STRUCTURING
CLMG - M - IM - MM - AFC - CLEFIN-FINANCE - CLELI - ACME - DES-ESS - EMIT - GIO
Course taught in English
Go to class group/s: 31
Market crashes and the resulting contagion effects have clearly shown the limitations of linear correlation in capturing the dependence structure among financial asset returns for the purposes of
- Assessing the risk of a financial institution.
- Pricing derivatives whose value depends on the performance interactions of different underlyings.
A few sessions are devoted to the practical implementation of models in MatLab.
- Review of parametric multivariate modeling in financial econometrics with emphasis on dependence and correlations.
- Tools from stochastic calculus: from deterministic to stochastic differential equations (SDEs), Brownian motions, stochastic integrals, martingales, driftless SDEs and semi-martingales, quadratic variation/covariation, solutions to general SDEs, and Ito's formula.
- Measures of dependence further to correlations and copulas.
- Modeling default correlation (pricing): reduced form intensity models; structural models; Single name credit derivatives (CDS); CDS bootstrap; multi name credit derivatives (CDOs); the CDO base and compound correlations; Gaussian Copula approach and extensions.
- Risk Management (credit risk). Default correlation models: one-factor Gaussian and multi-factor Gaussian; applications to credit risk of a portfolio of loans.
- Risk Management (market risk). Fundamental Review of the Trading Book approach, Sensitivity Based Approach. Applications to capital requirements and initial margin.
- Introduction to structured financial instruments: equity protection structures; exotic options and barriers and their applications in structuring.
- Correlations and structured products: basket derivatives and certificates.
Moreover, the structure of the exam for attending students reflects the three-part structure of the course (i.e., tools and risk management, pricing applications, structuring applications).
For attending students
- 1 hour written exam on entire syllabus and take-home project.
For non attending students
- 2.5 hours written exam on entire syllabus.
- D. Brigo, F. Mercurio, Interest Rate Models Theory and Practice, with Smile, Inflation and Credit, Springer Verlag, 2006.
- P.F. Christoffersen, Elements of Financial Risk Management, Academic Press, 2012, 2nd edition.
- M. Camelia, I certificati di investimento. Mercati, strutture finanziarie, strategie gestionali, Edizioni Il Sole 24 ORE, 2009.
- S. Shreve, Stochastic Calculus for Finance II, New York, Springer, 2004.
- P. Wilmott, Paul Wilmott Introduces Quantitative Finance, John Wiley & Sons, 2007.