Valuation of financial derivatives as a family of algorithmic computations, with analysis of the underlying financial model and hands-on implementation practice.
Concepts include: time value of money and interest rates, basic instruments and derivative contracts (bonds, forwards and futures, options, swaps), arbitrage based pricing, risk-free portfolio synthesis, hedging, elements of capital asset pricing model, collateral, marking to market, margining, market risk and credit risk, netting, modelling stochastic behaviour with Weiner processes, Ito's Lemma, Black-Scholes-Merton valuation of derivatives, related numeric valuation procedures, measurements of risk, volatility smiles, path-dependent and exotic derivatives, credit derivatives.
Suggested Textbook:
John C. Hull: Options, Futures, and Other Derivatives
(with Student Solutions Manual), 7th ed., Prentice-Hall, 2008.