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Derivatives I
040145; Monday: 08:00am - 12:00am (J2), Wednesday: 12:00am - 04:00pm (H3); 2. Term

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Date File Comment


Course Information

Semester: Winter Term 2017/2018
Term: 2nd term
Course Number: 040145
Lecturer: Prof. Dr. Nicole Branger
Contact Persons: Nikolai Gräber, M.Sc.
Frederik Middelhoff, M.Sc.
Room: J2, H3
Dates: Monday 08:15 - 09:45 a.m. (room J2)
Monday 10:15 - 11:45 a.m. (room J2)
Wednesday 12:15 - 01:45 p.m. (room H3)
Wednesday 02:15 - 03:45 p.m. (room H3)
Language: English
Credits: 6 ECTS (Master)
Semester hours: 2 + 2
Module(s): FCM03: Derivatives I (english) - Master of Science 'Betriebswirtschaftslehre' (PO 2010)

Description / Main Topics
Markets for financial derivatives have undergone substantial growth over the past years. Their relevance within the financial and banking system has risen significantly. Financial institutions and major corporations use derivatives for hedging, speculation and arbitrage as well as for constructing portfolios with specific payoff structures.

This course provides a strong learning foundation of derivative contracts like forwards, futures, and options. It introduces the students to the pricing and hedging of derivatives using the binomial model and the Black-Scholes model. It also discusses the volatility smile and its implications for option pricing models. Additionally, it introduces numerical methods used in option pricing.

Learning Outcomes

The primary purpose of this course is to provide students with a thorough understanding of derivatives markets and the basic methodologies used in derivatives pricing. The students are expected to learn the conceptual framework of the most-prominent pricing models, including the necessary concepts from stochastic calculus. The course is constructed in such a way that would enable the students to transfer the concepts and approaches from stock markets (which are considered in this class) to other underlying securities and more complex valuation models.

Course Assessment
Exam (Master PO 2010: 120 minutes)

Prerequisites
Introduction to Finance or equivalent basic masters level courses in Finance. For further information on the prerequisites, visit the FCM master webpage.

Comment
The class consists of lectures and tutorials which are both relevant for passing the exam. Due to the term structure, we will (roughly) provide two lectures and two tutorials each week. Please note that it is not yet determined at which time and date there will be a lecture or a tutorial. An exact schedule will be provided in November. The class will be taught in English. The exam will be written in English, too.

Reading Material
Hull: Options, Futures, and Other Derivatives, Prentice Hall, 9th edition, 2014.
or
Hull: Options, Futures, and Other Derivatives, Prentice Hall, 8th edition, 2012.

Further Literature
Baxter/Rennie: Financial Calculus (Chapter 1-4, 6), Cambridge, 1996.
Bingham/Kiesel: Risk-Neutral Valuation: Pricing and Hedging of Financial Derivatives, Springer, 2004.
Björk: Arbitrage Theory in Continuous Time, Oxford University Press, 2004.
Branger/Schlag: Zinsderivate: Modelle und Bewertung, Springer, 2004.
Cox/Ross/Rubinstein: Option pricing: A Simplified Approach, Journal of Financial Economics 7, 229-263, 1979.
Clewlow/Strickland: Implementing Derivatives Models, Wiley, 1998.
Jarrow/Turnbull: Derivative Securities: The Complete Investor's Guide, South-Western Education Publishing, 1999.
Neftci: Principles of Financial Engineering, Elsevier, 2nd edition, 2008.
Shreve: Stochastic Calculus for Finance I: The Binomial Asset Pricing Model, Springer, 2005.
Trautmann: Investitionen: Bewertung, Auswahl und Risikomanagement, Springer, 2nd edition, 2007.


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