ADVANCED DERIVATIVES.doc

ADVANCED DERIVATIVES Description This course builds on the material covered in Options and Futures Markets. It is intended for students who have a quantitative background and are interested in enhancing their knowledge of the way in which derivatives can be analyzed. Required Readings Hull, John C. Options, Futures, and Other Derivatives, 9th Edition Hull, John C. Solutions Manual for Options, Futures, and Other Derivatives, 9th Edition Assignments There are three hand-in assignments during the semester: Assignment 1: 14.13, 14.14, 14.16, 15.27, 15.29, 21.26, 21.28, 21.30 (due week 5) Assignment 2: 20.25, 27.20, 27.22, 25.24, 25.29, 26.26, 26.27, 26.28, 27.23 (due week 10) Assignment 3: 28.16, 28.17, 29.23, 29.25, 30.11, 31.24, 31.28, 32.14 (due week 14) Assessment Assignment 1 15% Assignment 2 15% Assignment 3 20% Final Exam 50% The final examination will not be open book. You will be permitted a two-sided “cheat sheet” with notes and/or formulae. Schedule Week 1: Introduction; Wiener Processes and Ito’s lemma; Chapter 14 Week 2: The Black-Scholes differential equation; Chapter 15 (esp Section 15.6) Week 3-4: Numerical procedures: Binomial and trinomial trees; Monte Carlo simulation; finite difference methods; Chapter 21 Week 5: Alternatives to Black-Scholes; Chapter 20 (review) and Sections 27.1 to 27.3 Week 6-7: Credit derivatives; Section 24.2 and Chapter 25 Week 8-9: Exotic options and their valuation; Chapter 26 and Sections 27.4 to 27.8 Week 10: Martingales and measures; Chapter 28 Week 11-13: Interest rate derivatives; Chapters 29-32 Week 14: Swaps revisited; Chapter 33 Week 15: Course review; Chapter 36