Derivatives Securities

Course Overview

The markets for derivative securities and their uses are covered in this course. The following three main concepts are presented in depth and practically throughout the course on derivative securities.

• 1. Financial Engineering:

  It is fundamental to comprehend the risks associated with each derivative investment as well as its profits and losses (P/L). Frequently, the P/L of a portfolio or the risks of a financial position are changed using derivative securities. Financial engineering is the process of transforming P/L and transferring risk. The P/L when a derivative security is paired with the underlying asset or with other derivative securities is covered in this course using a variety of trading tactics. Trading tactics frequently indicate limitations on how much derivative securities can cost. Meanwhile, the development of hedging and arbitrage tactics frequently follows price constraints.

• 2. Security Valuation:

  A derivative security's valuation is frequently a difficult task. The most significant models for valuing derivative securities are covered in this course. No-arbitrage pricing is the most fundamental tenet of derivative securities. This idea inspires a potent strategy known as risk-neutral pricing. The Black-Scholes formula, Monte Carlo simulation, and binomial trees are three crucial valuation tools provided by this method. These instruments can be used with many different types of exotic derivatives as well as options on equity and fixed-income products.

• Risk and Hedging:

  In practical terms, it is crucial to comprehend the risks associated with holding positions in derivative securities. The "Greeks" and volatility are the fundamental metrics for assessing risk in derivative assets. In-depth coverage of "Greeks" and volatility is provided in this course, which also teaches students how to create dynamic trading plans for mitigating risk in derivative securities. The implications and uses of inferred volatilities are also covered in the course. Students gain knowledge of portfolio management and derivative securities assessment.

  The course is intended for students who are highly driven and have a keen interest in the derivatives markets. Although the studies are occasionally quantitative, it concentrates on economic ideas and business logic. No advanced maths training is required of the students. Calculus in particular is not needed for the course. Lectures, class discussions, readings, exercises, homework assignments, and tests make up the curriculum.