### Option Theory and Structured Products (91075-ENG)

Pagina del corso:

Docente/i: Giorgio Consigli

Derivative products and financial engineering

The course provides an exhaustive treatment of the economics and financial features of options and structured products, with a specific focus on valuation principles, hedging and speculative strategies characterizing those markets.

The course evolves from the introduction of a wide class of options contracts with underlying including equities, fixed-income and futures contracts, to the explanation of the common valuation framework relying on closed form (Black and Scholes, Black) or numerical (Monte Carlo) approaches.

The course leaves space to the discussion by the students of specific case-studies and an extensive use of computer sessions is considered to enhance the understanding and the practical adoption options valuation procedures.

References

John Hull Options, Futures and other Derivatives, Pearson Pbl 2005, 6th edition

Salih N. Neftci. Financial Engineering, Elsevier Academic Press 2004, 1st edition

Other references to be agreed with Professor Dempster

Syllabus

1. Introduction to option contracts and derivatives

i. Classes of option contracts and market standards

ii. Markets clearing systems, demand and supply

iii. Financial markets, hedging, arbitrage and speculative strategies

J.Hull, Options, Futures and other derivatives, 6th ed, chapter 8

2. Options

i. Equity options

ii. European options put-call parity. American options put-call inequality

iii. Option strategies

iv. Fixed-income options

v. Compound options on futures

vi. Real options

J.Hull, Options, Futures and other derivatives, selected sections from chapters 9, 10, 13, 14, 31

3. Valuation techniques

i. Derivative valuation principles

ii. Pricing techniques

iii. Risk neutral pricing and Monte Carlo

J.Hull, Options, Futures and other derivatives, selected sections from chap. 11, 12, 13, 17, 26, 28

S.N.Neftci, Principles of Financial Engineering, chap. 11, 12

4. Hedging

i. The greeks

ii. Delta and gamma hedging

iii. Hedging effectiveness

J.Hull, Options, Futures and other derivatives, chap. 15

5. Financial engineering

i. Introduction to financial innovation

ii. Structured products

iii. Exotic options

J.Hull, Options, Futures and other derivatives, ch. 22

S.N.Neftci, Principles of Financial Engineering, ch. 9, 17 and 18

LAB SESSIONS

Lab 1 ? Discrete and continuous market models

Lab 2 ? Black-Scholes-Merton

Lab 3 ? MC option valuation

Lab 4 ? MC valuation for fixed income instruments

Lab 5 ? Hedging short positions

Lab 6 ? Advanced MC methods

**91075 - Option Theory and Structured Products (91075-ENG)**Docente/i: Giorgio Consigli

**Note sul corso**Derivative products and financial engineering

The course provides an exhaustive treatment of the economics and financial features of options and structured products, with a specific focus on valuation principles, hedging and speculative strategies characterizing those markets.

The course evolves from the introduction of a wide class of options contracts with underlying including equities, fixed-income and futures contracts, to the explanation of the common valuation framework relying on closed form (Black and Scholes, Black) or numerical (Monte Carlo) approaches.

The course leaves space to the discussion by the students of specific case-studies and an extensive use of computer sessions is considered to enhance the understanding and the practical adoption options valuation procedures.

References

John Hull Options, Futures and other Derivatives, Pearson Pbl 2005, 6th edition

Salih N. Neftci. Financial Engineering, Elsevier Academic Press 2004, 1st edition

Other references to be agreed with Professor Dempster

Syllabus

1. Introduction to option contracts and derivatives

i. Classes of option contracts and market standards

ii. Markets clearing systems, demand and supply

iii. Financial markets, hedging, arbitrage and speculative strategies

J.Hull, Options, Futures and other derivatives, 6th ed, chapter 8

2. Options

i. Equity options

ii. European options put-call parity. American options put-call inequality

iii. Option strategies

iv. Fixed-income options

v. Compound options on futures

vi. Real options

J.Hull, Options, Futures and other derivatives, selected sections from chapters 9, 10, 13, 14, 31

3. Valuation techniques

i. Derivative valuation principles

ii. Pricing techniques

iii. Risk neutral pricing and Monte Carlo

J.Hull, Options, Futures and other derivatives, selected sections from chap. 11, 12, 13, 17, 26, 28

S.N.Neftci, Principles of Financial Engineering, chap. 11, 12

4. Hedging

i. The greeks

ii. Delta and gamma hedging

iii. Hedging effectiveness

J.Hull, Options, Futures and other derivatives, chap. 15

5. Financial engineering

i. Introduction to financial innovation

ii. Structured products

iii. Exotic options

J.Hull, Options, Futures and other derivatives, ch. 22

S.N.Neftci, Principles of Financial Engineering, ch. 9, 17 and 18

LAB SESSIONS

Lab 1 ? Discrete and continuous market models

Lab 2 ? Black-Scholes-Merton

Lab 3 ? MC option valuation

Lab 4 ? MC valuation for fixed income instruments

Lab 5 ? Hedging short positions

Lab 6 ? Advanced MC methods

**Bacheche del corso**Cartella principale |

**Programmi del corso**Anno accademico : 2012-2013 | |

Codice 91075-ENG | |

Programma [agg. 16/10/2012] | |

**Informazioni e materiali didattici del corso**

**Testi consultabili in Biblioteca**