The objective of this course is to provide students with an in-depth coverage of options, futures, and other widely used derivative products. It stresses pricing and uses of derivatives for financial engineering and risk management. The course starts with an overview of derivative instruments, markets, participants and uses. It then focuses on the pricing and uses of futures, forwards and options. The cost of carry relationship, the binomial approach, the industry standard Black-Scholes model and its variants are detailed to equip students with the basic tools for pricing derivative instruments. Practical uses of derivative securities as risk-management tools for corporations and financial institutions are examined.
The course ends with a discussion of derivatives and financial engineering, showing how derivatives can be used to design or price new financial instruments, and how they can be created synthetically.