OVERVIEW

This teaching aims to provide quantitative and interpretative tools for the main financial derivatives and their application.

AIMS AND CONTENT

LEARNING OUTCOMES

This teaching aims to provide quantitative and interpretative tools for the pricing process of derivative products, with particular attention to the techniques employed on the energy markets. The strategic methods that analysts use for dealing with market changes in the markets are also illustrated with the aid of discussion cases. In particular, the students will be led to focus on sensitivity analysis through the Greeks and to develop of complex strategies based on derivative products as well as to exploit market movements through second generation derivative products. Finally, skills and tools will be provided for the active management of derivative portfolios on the energy markets.

AIMS AND LEARNING OUTCOMES

Learning outcomes:

This course is an introduction to derivatives. Definition and structure of different kinds of derivatives are treated, including futures, forward, and options contracts. Valuation principles and mathematical models are analyzed and applied, including the Binomial and the Black-Scholes-Merton model. Finally, efficient use of derivatives instruments will be considered for purposes such as risk control, arbitrage and speculation.

At the end of the course, the student will be able to deal, autonomously and properly, with the learned topics and apply them.

PREREQUISITES

Students are expected to know basic elements of financial mathematics, as they are taught in a course of Financial Mathematics at the laurea/bachelor degree.

Students are expected to know basic elements of calculus, as they are taught in a course of Mathematics at the laurea/bachelor degree (derivatives and integrals; linear algebra), and to be familiar with several variable functions (partial derivatives).

Students are expeted to know basic elements of probability, as they are thaught in a course at the laurea/bachelor degree (discrete and absolutely continuous random variables, expected value, variance).

TEACHING METHODS

Frontal lectures.

SYLLABUS/CONTENT

- portfolios and no-arbitrage principle;
- definition and main features of financial derivatives;
- forward contracts and futures contracts: structure and valuation;
- option contracts: structure, pricing bounds, put-call parity
- binomial model and application to option pricing;
- Brownian motion and Itô formula
- Black-Sholes-Merton model and application 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

September 2023

Class schedule

The timetable for this course is available here: Portale EasyAcademy

EXAMS

EXAM DESCRIPTION

The exam will be written and will contain questions on the theoretical and modeling features treated in the course as well as exercises.

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.