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DERIVATIVES

Program

EN IT

Updated A.Y. 2019-2020

(Last update Friday, August 9th 2019)

DERIVATIVES (A.A. 2019/2020)
Prof. Gianni Nicolini


 

AIM

The aim of the course is to provide knowledge of all the main contract types of derivatives (forward, future, options, etc.) and skills on pricing, contract evaluation and application. Within the application of derivatives a special concern will be attributed to the hedging strategies, rather than trading and arbitrage. Different hypothesis about the underlying asset will be done, including interest rates, currencies, stock prices and commodities. The structure and the functioning of derivative markets is part of the program too. In the last part of the course an analysis of the Exotic options and the structured products will be done.

PROGRAM


1) Introduction to Derivatives (main contract types, the underlying assets, derivatives markets, applications)

2) The Forward:

- definition, main features, application

- Pricing and the hypothesis of no-arbitrage

- The value of the forward contract

3) The Future:

- definition, main features, application

- Pricing and market value

4) The Forward Rate Agreement (FRA):

- definition, main features, application

- Pricing and market value

- The market makers and the Double way quote

5) The Swap

- definition

- The Interest Rate Swap (IRS): main features, application and pricing

- The currency swap

6) The Options

- Definition

- Option call: main features, pay-off and application

- Option put: main features, pay-off and application

- The option pricing (basic elements):

* Intrinsic value and temporal value

* Pricing limit: the maximum and minimum price limits

- Option trading strategies

7) Cap, Floor and Collar

- Cap: main features, pay-off and application

- Floor: main features, pay-off and application

- Collar: main features, pay-off and application

8) The Exotic Options

- Definition

- Analysis of the main contract types (Boston option, Bermuda option, Forward start option, compound option, as you like it option, barrier option, binary option, look back option, asian option, rainbow option, basket option)

9) The Structured Products

- Definition

- Analysis of the main contract types (Equity linked, reverse convertible, reverse floaters, credit default obligations, etc.)

MATERIALS

J.C.Hull, Option, Futures and Other derivatives, Pearson-Prentice Hall (last edition).

Slides used in class can be downloaded from the web-pages of the courses (they will be available during the course).