Course content
This course is both theoretical and practical. No background in financial markets or knowledge related to investments is required. We analyze the current situation in the financial markets using both historical and forward-looking perspective.
The course covers different investment assets and investment instruments including debt (bonds), equity and derivatives, and the cross relation between them. Thus, it gives the students a broad view on the macroeconomy and financial markets, markets that have developed and adjusted to the new technology available for trading.
In addition, the course covers recent and previous crisis, the correlation (or not?) of financial markets and real economies, effects on savings, risk taking, etc.
The role of big investors (hedge funds, saving funds and other institutional investors) is examined, and a question mark on them supporting/endangering financial markets is raised. The first part of the course covers the debt market, including the recent developments in the interest rates and central banks decisions.
In the second part we learn about options (and other derivatives) and emphasize the relationship between risk and return.
The third part combines bonds and options, adds equity (stocks) and shows the link between the three, discussing arbitrage and leverage.
The fourth part uses previous materials to explain recent crisis, the recent inflation, the hedge-fund industry, commodities prices, forex markets, employee options, hedging, etc. Pre-course Activity:The pre-course activity file, including a few short contemporary articles to read before the course starts, and a request for an overview of specific financial data, is published at the end of May. Class 1&2. Bonds: structure, YTM (yield to maturity), duration, risk, yield curve and spreads, nominal real and inflation; Hull chapter 4,6.
Class 3. Options: fundamentals, definition, graphical demonstration and arbitrage; Hull chapter 9.
Class 4&5. Strategies, put call parity (PCP), hedging and arbitrage; Hull chapter 9,10.
Class 6&7. The Binomial model. contingent claims. Demonstration: the option value of stocks, the effect on the yield to maturity; Hull chapter 11.
Feedback activity: an optional "take home exam"
Class 8&9. B&S model, the Greeks, evaluating employee options, volatility and the volatility index (VIX, the fear index); Hull chapter 13,17.
Class 10. Futures, commodity markets, forex markets. Employee options. Debt, leverage, derivatives and recent crisis. The role of big investors: hedge funds, mutual funds, algorithmic trading and stability/instability; Hull chapter 5,14.
See course description in course catalogue