Derivative Markets
3rd Semester, Course Code: ΜΕΧΤΕ302
Credits: 7,5
Learning Outcomes
The course focuses on the operating mechanisms of the financial derivatives markets which are currently an active part of the international financial markets. The main objective of the course is to help students gain the intuition and to provide the necessary skills for pricing and hedging of derivative securities, and for using them for investment, risk management, and prediction purposes. It discusses a wide range of applications and real-life cases, including the use of derivatives in asset management, interest rate derivatives, credit derivatives, as well as crude oil derivatives and currency derivatives. In addition to theoretical discussions, it also emphasizes practical considerations of implementing strategies using derivatives as tools. In order to provide a useful treatment of these topics in a world that is changing rapidly, it is necessary to stress fundamentals and to explore topics at a technical level. Specifically, the objective of this course is to teach students how to analyse a problem/situation involving derivatives so that they also know how to deal with a different one in the future.
After the successful completion of the course, students will be able to
- know the main features of basic financial derivative securities
- use basic financial derivative products to design speculative strategies, arbitrage strategies, and hedging strategies.
- interpret the main risk components, such as sensitivity coefficients, of basic financial derivative products and use them for risk management of dynamic portfolios.
General Competences
- Development of free, creative and inductive thinking,
- Decision making,
- Individual/independent work,
- Work in an interdisciplinary environment.
Course Content
Futures and Futures Contracts: Terminology – Payoffs – Standardization – Margin Operations – Valuation – Speculation – Risk Hedging – Options Markets: Call and Put – Basic Positions – Payoffs and P/L Charts – Standardization – Trading – Spreads – Options — Properties of Stock Options: Basic Assumptions – Factors Affecting the Value of Options – Speculation – Put-Call Parity – Early Exercise of American Options – The Effect of Dividends – Options and Speculative Strategies- Interpretation of the Put Call Parity – Binomial Model: One-Step Binomial Trees – Two-Step Binomial Trees – Valuation with Risk-Free Portfolios – Risk Neutral Valuation – Valuation of European Options – Valuation of American Options – Hedging Delta Risk – Black, Scholes & Merton’s MDE – Risk Neutral Valuation – Black & Scholes Valuation Formulas – Implied Volatility.
Student Performance Evaluation
Written Final Exam (80%) and individual homeworks (20%).
Bibliography
Suggested Bibliography
- John C. Hull,Options, Futures, and Other Derivatives, 10thEdition, Pearson, 2018.
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