Student guide Faculty of Engineering A.Y. 2010/11

Derivatives
Lesson timetable, Notice board, Additional material
Aim of the course
To illustrate the particular attributes of derivative financial products (futures, options and swaps), investigating their technical characteristics, methods of use and pricing models. In addition to analysing the possible uses of these instruments in financial operations, students will also learn how the framework of options theory provides a  means for valuing other financial instruments and contracts, as well as for clarifying the capital budgeting decisions of firms.
Syllabus
A. Forward contracts on currencies and rates
a. Specification of the contracts
b. Pricing
B. Futures contracts
            a. Institutional specifications
            b. Index futures
            c. Interest rate and bond futures
            d. Commodity futures
C. Swap contracts
            a. Interest rate swaps
            b. Cross currency swaps
D. Options
a. Types and arbitrage relations
b. Strategies for use
c. Classic pricing models: binomial and Black-Scholes
d. Risk analysis and risk exposure analysis: "greeks" and VaR
e. Alternatives to the classic models
f. Exotic options
g. Extension of pricing models
Applications of options theory
a. Valuation of financial contracts
b. Valuation of management fees
c. Capital budgeting decisions
Examinations
The examination procedure will be communicated at the start of the course.
Reading list
Hull J.C., Option, futures and other derivatives securities, Prentice Hall