To develop further students' knowledge of how markets in financial derivatives work and to some of the basic mathematical models used to price derivatives. To apply this knowledge to the pricing and hedging of embedded options in life insurance and annuities.
1. Black-Scholes-Merton Option Pricing Model (1.1 Explain the properties of the lognormal distribution and its applicability to option pricing., 1.2 Understand the Black-Scholes formula)
2. Greeks and Risk Management (2.1 Explain the calculation and use of option price partial derivatives., 2.2 Explain how to control risk by using options in a hedging context.)
3. Interest rate and credit models (3.1 Introduction of models to the term structures of interest rates and Blacks model., 3.2 Merlon model for credit risk and Jarrow-Landau-Turnbull model)
4. Embedded Options in Life Insurance and Annuity Products
By the end of the course, students should be able to do the following:
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SCQF Level: 10
Credits: 15