BE-511 Derivatives
- ECTS Credits:
- 7.5
- Responsible department:
- School of Business and Law
- Course Leader:
- Valeriy Ivanovich Zakamulin
- Lecture Semester:
- Spring
- Teaching language:
- English.
- Duration:
- 1 term
The course is connected to the following study programs
- Master's Programme in Business Administration
- Master's Programme in Business Administration (5 years)
Teaching language
English.Recommended prerequisites
Knowledge of math calculus and basics of probability theory, statistics, and R programming. Builds upon previous courses in "Quantitative Methods", "Financial Econometrics", and "Investments", or equivalent.
Course contents
The aim of this course is to provide a detailed treatment of the main theoretical foundations of contemporary derivative pricing theory and give students necessary quantitative skills in computation of prices of various derivative securities.
On the theoretical side, the course presents in-depth coverage of the absence of arbitrage pricing principle, stochastic processes for financial prices, the continuous-time Black-Scholes model, binomial option pricing, and pricing of options using Monte-Carlo simulation methods.
On the practical side, using the open source R statistical programming language, the students learn how to implement the computation of option prices using closed-form solutions, binomial trees, and simulation methods. In addition, the students learn how to simulate prices of financial assets. Last but not least, using real-life data the students learn how to estimate historical volatility and how to compute the implied volatility.
Learning outcomes
Upon successful completion of this course the students should be able to
- Explain option contracts and trading strategies with option
- Plot and analyze the payoff and profit from derivative trading strategies
- Retrieve financial prices and estimate the mean return and volatility
- Describe the stochastic processes and simulate prices of financial assets
- Master the theoretical foundations of contemporary derivative pricing theory
- Fully understand the continuous-time Black-Scholes model for option pricing
- Compute option prices using closed-form solutions
- Compute implied volatility from market prices of options
- Compute option prices using binomial trees
- Compute option prices using Monte-Carlo simulation methods
Examination requirements
Approved mandatory assignments. Further information is given in Canvas.
Teaching methods
The course consists of lectures and group-work sessions. Estimated workload is about 200 hours.
Evaluation
End of term evaluation.
Admission for external candidates
If a person satisfies prerequisites
Assessment methods and criteria
2 days home examination which constitutes 100% of the final grade. Letter grades.
Reduction of Credits
This course’s contents overlap with the following courses. A reduction of credits will occur if one of these courses is taken in addition:
| Course | Reduction of Credits |
|---|---|
| BE-419 – Finance Theory | 2.5 |