De­riv­at­ives and Fixed In­come

Course content

The course deals with the properties, the applications, and the pricing of derivative securities. More specifically, the topics include

• general properties, applications, and pricing results for forwards and futures
• option strategies
• review and refinements of binomial models
• introduction to continuous-time option pricing: Brownian Motion, Itô's Lemma, Black-Scholes PDE
• the Black-Scholes option pricing model
• extensions of the Black-Scholes model such as the Heston model 
• the Black 76 model for options on forwards/futures
• hedging strategies and the "Greeks"
• volatility smiles
• tree-based interest rate models
• continuous-time interest rate models
• pricing of interest rate derivatives (such as bonds, swaps, futures, options on bonds, caps, floors, swaptions)
• Monte Carlo simulation

Excel is used wherever relevant.