Derivatives are a fundamental tool for managing risk exposures, including both hedging and speculation. More broadly, the language and concepts related to derivatives touch almost every topic in finance.
This course provides an analytical overview of futures, options, swaps and other derivatives. We will discuss how derivatives are constructed and deployed to solve particular problems, as well as the underlying pricing methodologies. We will pay special attention to the role of the risk premium in pricing. We will also discuss how derivatives fit into the current regulatory environment.
Review of futures and option basics
Basic structures, including insurance, collars, convertibles, and reverse convertibles
The lognormal model and Monte Carlo valuation
Pricing of long-term risks
Regulatory reforms relating to derivatives in the US and Europe