The aim of this course is to present the basic notions and facts on derivative markets and pricing. Topics will include futures, options, swaps, credit risk models and some exotic derivative products.
Upon successful completion of the course, students will be able to;
By the end of the course, students will be able to:
Describe and characterize derivative products and derivative markets;
Analyze the impact of market factors on the prices of derivative products;
Price derivatives by using Binomial and Black-Scholes-Merton pricing models;
Use derivative products for risk management;
Have a knowledge on various credit instruments, their pricing methods and application of them in risk management.
Fully Online
Theoretical lectures(Lecture), Study time for Theoretical Lectures (Lecture), Question & Answer, Study time for midterm(s), Study time for final exam
Yes
Requires consent of instructor for undergraduate students
1 midterm-45%
1 final-55%
Passing grade is at least 35. As long as a university approved excuse exists a makeup will be given for midterm and final
Course Content
Introduction
a) What are derivatives?;
b) The main types of derivatives;
c) Derivatives markets;
d) Reasons for trading derivatives;
e) The market for forwards and futures;
f) Marking to market and margins.
g) The market for options;
h) Pricing.
Forwards and Futures I
a) Interest Rates;
b) Pricing forwards and futures;
c) Forward and futures prices on underlying assets with cash-flows;
d) Forward and future prices on currencies and risky assets with dividends;
e) Value of forwards and futures contract;
f) Futures on commodities;
g) No arbitrage relations.
Forwards and Futures II
a) No arbitrage relations continued;
b) Interest rates revisited;
c) Bond pricing;
d) Zero rates and forward rates;
e) Forward rate agreements and the Eurodollar futures.
Swaps I
a) Forward and Futures continued and review;
b) Interest Rate Swaps.
Swaps II and Hedging
a) Money Swaps;
b) Hedging.
Options
a) Option payoffs;
b) Margin accounts;
c) Properties of stock options;
d) Upper and lower bounds for option prices;
e) No-arbitrage restrictions; the put-call parity;
f) Early exercise of American options.
Midterm.
Trading Strategies and Option Pricing
a) Trading strategies involving options;
b) The binomial model;
c) Valuation of European options;
d) Valuation of American options.
Trading Strategies and Option Pricing
a) Trading strategies involving options;
b) The binomial model;
b) Valuation of European options;
c) Valuation of American options.
The Black-Scholes-Merton Model
a) The Black-Scholes-Merton formula;
b) Derivations of the Black-Scholes-Merton formula (Optional);
c) Volatility estimation and implied volatility;
d) Options on Stock Indices;
e) Options on Currencies;
f) Options on Futures.
Hedging and the Greeks
a) What are the Greeks?;
b) Hedging with Greeks;
c) Portfolio Insurance;
d) Volatility Smiles.
Lectures 12 and 13 - Credit Risk I
a) Modeling Default;
b) Recovery rates and expected loss;
c) Structural model;
d) Reduced-Form model;
e) Historical Default Probabilities;
f) Estimating default probabilities from bond prices;
g) Credit risk mitigation;
h) Default correlation.
Lectures 12 and 13 - Credit Risk II
a) Modeling Default;
b) Recovery rates and expected loss;
c) Structural model;
d) Reduced-Form model;
e) Historical Default Probabilities;
f) Estimating default probabilities from bond prices;
g) Credit risk mitigation;
h) Default correlation.
Credit Derivatives I
a) Credit default swaps;
b) Valuation of credit default swaps;
c) Total return swaps;
d) Collateralized debt obligations (CDOs).
Credit Derivatives II
a) Portfolio credit risk models;
b) Review before the final.
Any test, assignment, paper, or report submitted by you and that has your name on it is presumed to be your own original work that has not previously been submitted for credit in another course or has not been written partially or completely by another person. In all of your assignments, you may use words or ideas written by other individuals in publications, web sites, or other sources, but only with proper attribution as explained in your course. If you are not clear about the expectations for completing an assignment or taking a test or examination, be sure to seek clarification from your instructor. Finally, you should keep in mind that as a member of the campus community, you are expected to demonstrate integrity in all of your academic endeavors and will be evaluated on your own merits.. The consequences of cheating and academic dishonesty is a formal discipline punishment as regulated by the Turkish Higher Educational Council.
Educational Support for Disabled Students
If you have a disability for which you are or may be requesting an accommodation, you are encouraged to contact both your instructor and Bilgi Accessible Education Unit as early as possible in the term. Bilgi Accessible Education Unit will verify your disability and determine reasonable accommodations for this course. For more information, visit http://step.bilgi.edu.tr/en/ogrenci-destek-merkezi/bilgi-accessible-education-unit/
