The objective of this course is to start from basic concepts of derivatives and develop an understanding of the role and practical use of options as a financial instrument, especially in the context of Corporate Finance. The course discusses hedging and pricing of options using both the discrete and continuous- time (Black and Scholes approach). We then relate these techniques to corporate finance applications such as the valuation of investment opportunities, as well as the design of corporate debt instruments.
João Manuel Gonçalves Amaro de Matos
Weekly - Available soon
Total - Available soon
John Hull, Options, Futures, and Other Derivatives, Prentice-Hall, Englewood Cliffs, New Jersey, U.S.A. 8th edition, 2012.
Jarrow and Chatterjea, Derivative Securities, Financial Markets and Risk Management, Norton, New York, 2013.
Class Notes will be provided in advance.
The teaching method is based on lectures, 2 per week. Students are required to solve online a list of exercises every week regarding the topics discussed in class during that week. At the end there is an applied case study to be solved, where students should make use of the material of the course. A final and short comprehensive exam is made at the end.
The Final Exam is mandatory and must cover the entire span of the course. Its weight in the final grade can be between 30 to 70%. The remainder of the evaluation can consist of class participation, midterm exams, in class tests, etc. Overall, written in class assessment (final exam, midterm) must have a weight of at least 50%.
Weekly online exercises: (average grade E). Case Studies (grade C)
Final exam: (grade F)
Final grade will be: 0.5F+0.3C+0.2E
1st class (4 Feb): State Prices and Derivatives Valuation: Recovering the Binomial Model;
2nd class (5 Feb): Valuing Options with Stochastic Volatility and Term Structure of Interest Rates; 3rd class (11 Feb): Valuing Options in N periods and the Continuous-Time Limit;
4th class (12 Feb): Valuing American Options and Options on Dividend-Paying Assets; 5th class (18 Feb): The Black-Scholes Model and its Properties;
6th class (26 Feb): Equity and Corporate Debt Representations as Options; 7th class (3 Mar): Real Options;
8th class (4 Mar): Dynamic Delta Hedging and the Greeks; 9th class (10 Mar): Principles of Simulation;
10th class (11 Mar): Exotic Options;
11th class (12 Mar): Discrete-Time Models for Options on Interest Rates; 12th class (13 Mar): Case study’s presentations.
Programs where the course is taught: