OVERVIEW

This teaching unit is devoted to the study of financial derivatives, with particular attention to valuation principles, the main pricing models, and hedging strategies. The teaching unit is part of the study programme as an applied extension of the financial modelling developed in the first module.

AIMS AND CONTENT

LEARNING OUTCOMES

This second module develops the application of the financial modelling largely introduced in the first module to the valuation of the fair price of financial derivatives. The teaching unit contributes to the study programme by providing tools for derivative analysis, the construction of hedging strategies, and the understanding of selected operational strategies based on these instruments.

AIMS AND LEARNING OUTCOMES

At the end of the teaching unit, students will be able to:
- describe the structure and features of the main derivative instruments, with reference to futures, forwards, and options;
- apply derivative valuation principles to cases and exercises proposed during the course;
- use the main mathematical pricing models, including the binomial model and the Black-Scholes-Merton model, to value derivative contracts;
- interpret the use of derivative instruments in contexts of risk hedging, arbitrage, and speculation;
- address autonomously exercises and problems concerning the topics covered in the course.

PREREQUISITES

Basic knowledge of financial mathematics, probability, and stochastic calculus is required, together with the main elements of financial modelling developed in the first module.

TEACHING METHODS

Seventy-five per cent of the teaching unit is delivered through recorded lectures, while the remaining twenty-five per cent takes place in person. In addition, 9 hours of e-tivities are planned, including laboratories on practical applications of the main topics.

Attendance is not compulsory.

Students with certified disabilities, specific learning disorders, or other special educational needs are invited to contact the instructor at the beginning of the classes in order to agree on teaching and examination arrangements which, while respecting the learning objectives of the teaching unit, take individual learning needs into account and allow the use of any appropriate compensatory tools. Mail to inclusione.economia@unige.it

SYLLABUS/CONTENT

review of stochastic calculus, with particular reference to Brownian motion and Itô's formula; 
- Black-Scholes-Merton model and applications to option pricing;
- Greeks;
- hedging strategies.

RECOMMENDED READING/BIBLIOGRAPHY

Main reference:
 J. C. Hull, Options, futures, and other derivatives, 11th edition, Pearson, 2022.

Further readings:
P. Wilmott, P. Howison and J. Dewynne, The Mathematics of Financial Derivatives: a Student Introduction, Cambridge University Press, 1995.
T. Bjork, Arbitrage theory in continuous time, 4th edition, Oxford University Press, 2019.

LESSONS

LESSONS START

First semester 26-27

Class schedule

The timetable for this course is available here: Portale EasyAcademy

EXAMS

EXAM DESCRIPTION

The exam is written and includes questions on the theoretical and modelling aspects covered 
in the course, as well as applied exercises.

ASSESSMENT METHODS

There will be the Open Badge exam to asses the contents of each module: An Open Badge assessment is planned to verify the contents of each module

FURTHER INFORMATION

Other information will be provided during the course. For non-attending students the same rules apply.

Students with DSA certification ("specific learning disabilities"), disability or other special educational needs are advised to contact the teacher at the beginning of the course to agree on teaching and examination methods that, in compliance with the teaching objectives, take account of individual learning arrangements and provide appropriate compensatory tools.