Financial Engineering 1000-135IFI
Course syllabus
1. Introduction
-Derivative instruments
-Financial markets
-Market statistics - as of 2004
-Market variables - underlying prices
-Share prices, foreign exchange rates (spot)
2. Interest rates
-Basic interest rates
-Zero-coupon bonds, discount factors
-Zero-coupon yields
-Forward interest rates
3. FRA
-FRA structure
-FRA interest rate vs. forward rate
-Pricing of FRA
4. IRS / CCIRS
-Structure of interest rate swaps
-Fixed leg pricing
-Floating leg pricing
-Determination of zero-coupon yields from IRS rate quotes
5. Forward contacts
-Structure of forward contracts
-Exercise price of a forward contract
-FX forward contracts
-Pricing of forward contac
-Futures contracts
6. Options
-Types of options
-Plain vanilla options
-Call-put parity
-Bounds on plain vanilla option prices
-Dependence of plain vanilla option price on exercise price
-Dependence of plain vanilla option price on underlying spot price
-Option time value
7. Discrete models - Binomial trees
-One period model
-Multi period model
8. Continuous models - Stochastic differential equations framework
-Geometric Brownian motion
-Ito Lemma
-Black-Scholes formula
-Black-Scholes differential equation
9. Sensitivity analysis of option's portfolios
-Delta, Gamma
-Vega
-Rho
-Theta
-Hedging of option's portfolios
10. Volatility
-Historical volatility
-Implied volatility
Structure of implied volatility
11. Interest rate options
-Caps/floors
-Swaptions
Type of course
Prerequisites
Course coordinators
Bibliography
Financial Engineering:
[1] Neil A. Chris, Black-Scholes and Beyond - Option Pricing Models, McGraw-Hill, 1997.
[2] Keith Cuthbertson, Dirk Nitzsche, Financial Engineering, Derivatives and Risk Management, Wiley, 2001.
[3] Richard Flavell, Swaps and Other Derivatives, John Wiley & Sons, Chichester 2002.
[4] Thomas S.Y. Ho, Sang Bin Lee, The Oxford Guide to Financial Modeling}, Oxford University Press, 2004.
[5a] John C. Hull, Futures, Options and Other Derivatives, Fourth Edition, Prentice Hall, 2000.
[5b] John C. Hull, Solutions Manual. Futures, Options and Other Derivatives, Fourth Edition 2000, Prentice Hall.
[5c]John C. Hull, Futures, Options and Other Derivatives, Fifth Edition, Prentice Hall, 2002.
[6] Robert Jarrow, Stuart Trunbull, Derivatives Securities, South Western College Publishing, 1996.
[7] Robert W. Kolb, Futures, Options, & Swaps, Third Edition, Blackwell, 2000.
[8] Mark Rubinstein, Rubinstein on Derivatives, Risk Books, 1999.
[9] Paul Wilmott, Derivatives - the theory and practice of financial engineering, Wiley, 1999.
Mathematical methods of financial engineering:
[1] Thomas Bjork, Arbitrage Theory in Continuous Time, Oxford University Press, 1998.
[2] Darrel Duffie, Dynamic Asset Pricing Theory, Princeton University Press, 1996.
[3a] Steven E. Shreve, Stochastic Calculus for Finance I - The Binomial Asset Pricing Model, Springer, 2005.
[3b] Steven E. Shreve, Stochastic Calculus for Finance II - Continuous Time Models, Springer, 2004.
Additional information
Information on level of this course, year of study and semester when the course unit is delivered, types and amount of class hours - can be found in course structure diagrams of apropriate study programmes. This course is related to the following study programmes:
- Bachelor's degree, first cycle programme, Mathematics
- Master's degree, second cycle programme, Mathematics
Additional information (registration calendar, class conductors, localization and schedules of classes), might be available in the USOSweb system: