Course co-ordinator(s): Dr Timothy C Johnson (Edinburgh).
Aims:
The purpose of this module is to introduce students to advanced and practical topics in derivative markets, which are essential preparation for a career in the financial industry.
Detailed Information
Course Description: Link to Official Course Descriptor.
Pre-requisite course(s): F79DF Derivative Markets and Discrete-time Finance & F79SP Stochastic Processes .
Linked course(s): F70CF Continuous-Time Finance .
Location: Edinburgh.
Semester: 2.
Syllabus:
• Exchange-traded versus over-the-counter options
• American options
• Numerical methods for pricing American options
• Exotic options; different types
• Methods for pricing exotic options
• Interest-rate models: Black’s formula, short-rate models; market models
• Pricing caplets and swaptions
• Review of Black-Scholes assumptions and their validity in the real world
• Reasons for market incompleteness and implications
• Market price of risk
• Examples of market incompleteness
Reading list:
Reading
Due to the breadth of the material there is no specific recommended text, however as the course follows the ST6 syllabus students are advised to refer to the Core Reading for ST6 (supplied). The recommended reading for ST6 is:
- Hull, J., (2000) Options, futures and other derivative securities, Prentice Hall;
SCQF Level: 10.
Credits: 15.
Other Information
Help: If you have any problems or questions regarding the course, you are encouraged to contact the course leader.
Canvas: further information and course materials are available on Canvas