Derivatives

Instance: 2020/2021 - 2S

Cycles of Study/Courses

Last updated on 2021-02-12.

Fields changed: Calculation formula of final grade, Componentes de Avaliação e Ocupação, Obtenção de frequência

Teaching language

Objectives

This course defines the concept of “derivative security” and investigates the mechanics of the markets on which such securities are traded. The significance of derivative securities is analysed both within the context of economic theory as well as from a practitioner’s viewpoint. Special attention is given to the pricing problem of these securities and various methods are studied to solve the problem. It is also discussed how these securities can be used for hedging and risk management. The module analyses the risks associated with derivatives securities, how to measure and manage risk.

Learning outcomes and competences

The risk management in the perspective both of the investor and of the companies require a deep understanding of its instruments. Given the diversity and complexity of derivative instruments, it is considered to be appropriate to focus on these topics.

Working method

Program

1. Forwards and Future Contracts

• Futures Markets
• Hedging with Futures
• Forwards and Futures Pricing

2. Swaps

• Swaps Markets
• Swaps Pricing

3. Options

• Options Markets
• Arbitrage restrictions on options values
• Strategies involving Options

4.Option Pricing Models

• Black-Scholes Model
• Options on Stock Indices, currencies and futures

5. Advanced Topics

• Exotic Options
• Credit Derivatives

Mandatory literature

Teaching methods and learning activities

Flipped classroom: the principle underlying this methodology assumes that the student will prepare before hand the topics assigned to each class. As a consequence the student will have a greater grasp and critical opinion on those topics so we can free class time to solve cases and exercises with the teacher support. For the preparation of each class the students have available in Moodle videos and reading sugestions per class. 
Each class starts with a quiz that will allow the student to assess the effectiveness of the preparation before the class. Afterwards, specific topics will be addressed followed by the clarification of all the questions risen during that preparation. The second part of the class is dedicated to problem-solving and case analysis in groups. 

Evaluation Type

Assessment Components

Amount of time allocated to each course unit

Eligibility for exams

One of the following continuous assessment regimes:

Calculation formula of final grade

The final grade will be computed with the following weights:

- 2 interim exams: 60%

- Group project: 25% (groups of 5 students)

- Engagement: 15% 

Minimum Grade for every assessment component: 60 points (out of 200 points).

Examinations or Special Assignments

Group assignment: the subjects will be discussed in class.

Special assessment (TE, DA, ...)

Final Exam.

Classification improvement

Final Exam and oral examination.