Financial Derivatives

Classes are based on a theoretical-practical approach, and the exposure of contents is accompanied by a wide range of real cases, both
national and foreign. There will be also a contents exposure followed by questions which will be discussed and brainstormed

At the end of the course, students should: (i) distinguish the fundamental characteristics of the various derivative products; (ii) know how to
determine the value of a futures contract and distinguish between the various types of futures; (iii) understand and know how to apply
immunization and speculation strategies; (iv) describe the basic characteristics of a forwards contract; (v) interpret a deposit and fixing
interest rate; (vi) know the implicit calculation in an exchange rate and understand its effect on the calculation of swap points; (vii)
characteristics and operation of swap operations; (viii) distinguish between European and American options. Calculate option payment
profiles; (ix) define intrinsic value and time value and explain their relationship. Explain the put-call parity relationship and relate it to
arbitrage strategies; (x) recognize and apply the main option pricing models; (xi) identify and explain exotic options; (xii) use hedging
strategies.

1. The derivatives market
2. Futures markets
3. Forward Contracts
4. Interest rates used as underlying in derivatives
5. Exchange rates used as underlying
5.1 Foreign exchange market: exchange rate formation
5.2 Cross Rates
5.3 Swap points
6. Swap transactions
6.1 Characteristics and operation of swap operations;
6.2 Interest rate swaps;
6.3 Currency swaps;
7. Curve analysis
7.1 Interest rate curves
7.2 Credit Spread Curves and Basis Spread Curves
7.3 Introduction to the concept of volatility curves
8. Options markets
8.1 Risk and profit profile. Market organization and operation.
8.2 Option prices: determinants; arbitrage restrictions; put-call parity.
8.3 Hedging and speculation strategies: options algebra; results profiles.
8.4 Option Valuation Models: Binomial Model, Black & Scholes Model, Dividend Effect and Merton Model.
8.5 Options and financial innovation: structured products and exotic options

NAO