Applied Derivatives


Ár1. ár
ÖnnVorönn/Spring 2020
Stig námsgreinar4. Framhaldsnám, grunnnámskeið
Tegund námskeiðsValnámskeið
UndanfararV-755-CORP, Fjármál fyrirtækja
SkipulagEkkert skráð skipulag.
K. Ravindran
Derivatives are widely known financial instruments that can be used very effectively to hedge against or speculate on any financial markets risks/behaviour. Derivatives also have had the bad rap as the weapons of the mass destruction (courtesy of Warren Buffet). This course will cover the practical applications of basic building blocks of derivatives (i.e. forwards, futures, swaps and options) and then use the options as the base to construct other more useful, effective and powerful risk-management and speculation options. In addition, the course will discuss the valuation (or quantification of the risks underlying) these options using spreadsheets (including the construction of zero rate curves and volatility term structures). Time permitting, the course will also discuss a few case studies on how these are applied in practice.
The student should understand:
•How to build a zero curve using bonds and money market instruments?
•The concept of the basic building blocks of derivatives (forwards, futures, swaps and options) from both a practical and theoretical perspective.
•Risks arising from the transaction of derivative instruments in the equity, currency, interest rate markets.
•How to go about quantifying the risks underlying many standard derivative contracts using Excel Spreadsheet.
•How to go about using derivatives in practice to hedge and/or speculate.
The student should be able to
•Build an approximate zero curve that can used as inputs to value the derivatives and embedded derivatives
•Qualitatively understand the risk exposures arising from financial transactions
•Build a simple pricing tool in Excel so as to be able to approximately quantify the risks that has been qualitatively understood
The student should be able to:
•Value most derivatives contracts in the equity and currency markets.
•Value simple derivatives contracts in the interest rate markets.
•Quantify financial risks any corporation is exposed to using a what-if-scenario analysis
•Create a customized derivatives hedge to mitigate financial risks
•Export these concepts understand/appreciate and solve problems in other markets not discussed in class (e.g. Oil, electricity, weather etc.)

Ekkert skráð lesefni.
Teaching will be done using a combination of approaches ranging from lectures to case studies to discussions to class exercises and group presentations. The teaching will rely on the students’ active participation and good preparation. The teaching methods reflect the stated learning outcomes of the course.