Topics in derivatives 2400-ENSM047A
This seminar focuses on research in financial mathematics, derivatives pricing, and financial market modeling. Students are encouraged to write a thesis on the following topics:
1. Implied volatility smile across markets
2. The performance of delta-hedged option strategies
3. Volatility indexes
4. Modeling term structure of interest rates
5. Interest rate models
6. Pricing and risk management of interest rate derivatives
7. The impact of negative interest rates on valuation methodologies
8. Modeling credit risk and the impact of default correlation
The aim of this seminar is to discuss methods of financial instruments pricing (including derivatives), with special focus on the practical aspects.
Type of course
Course coordinators
Learning outcomes
Upon the course completion (lecture, discussions) a student:
- is able to analyze and model financial derivatives,
- is able to recognize the practical implications of theoretical theories in case of the specific financial problem,
- is able to provide an explanation for the use of specific tool and model in the process of pricing derivatives, designing investment strategies, risk management, etc.
The aim of this seminar is not only to help students in writing very good thesis but presenting all the practical applications for financial theories and models used in the process of its preparing.
KW01, KW02, KW03, KU01, KU02, KU03, KK01, KK02, KK03
Assessment criteria
fter first (out of 3) semester students have an outline of the thesis prepared, data is collected and hypothesis is prepared.
After second semester (out of 3) literature overview is completed and majority of modelling work done.
After third semester (out of 3) thesis is ready for the defense.
Bibliography
Selected by tutor for the topic. Students are encouraged to select a topic based on a review of the following references.
Books:
Brigo, D., & Mercurio, F. (2007). Interest rate models-theory and practice: with smile, inflation and credit. Springer Science & Business Media.
Fabozzi F.J., 2004, Fixed Income Analysis, Wiley, New Jersey.
Hull J., Options, Futures and Other Derivatives, Prentice Hall, New Jersey 2006.
Hirsa, A., & Neftci, S. N. (2013). An introduction to the mathematics of financial derivatives. Academic Press.
Papers:
Black, F., and Scholes, M., 1973, The pricing of options and corporate liabilities, Journal of Political Economy, 81, 637-659.
Brace, A., Gaterek D. and Musiela, M. (1997). The market model of interest rate dynamics. Mathematical finance, 7(2), 127-155.
Hull J., White A., 1987, The pricing of options on assets with stochastic volatilities, Journal of Finance 42, 281-300.
Mixon S., 2009, Option markets and implied volatility: Past versus present, Journal of Financial Economics 94, 171-191.
Ahmad, R., & Wilmott, P. (2005). Which free lunch would you like today, sir?: Delta hedging, volatility arbitrage and optimal portfolios. Wilmott, 64-79.
Hagan, P. S., Kumar, D., Lesniewski, A. S., & Woodward, D. E. (2002). Managing smile risk. The Best of Wilmott, 249.
Additional information
Additional information (registration calendar, class conductors, localization and schedules of classes), might be available in the USOSweb system: