This class exists in these courses :
• IÉSEG > IESEG Degree - Programme Grande École > Semester 2 > 2,00 ECTS

Prerequisites

The course futures and options 1 is obviously a prerequisite for futures and options 2. Students who sign up for this module should have basic knowledge of financial markets and institutions. Students should also be comfortable with mathematical modeling, and be also familiar with probability calculus.

Students must be sure that they familiar enough with probability and mathematical notations. Before signing, please look at the book of Chance (say on google book).

In this course, the so-called Black-Scholes formula will not be proved. However, it will be shown to the student how one can obtain this Black-Scholes formula from a (suitable) binomial framework. While not so complicated, this will require familarity with probability and mathematical notations.

Learning outcomes

Understand the pricing of futures and options using no-arbitrage in a binomial framework
Understand the link between option pricing and hedging
Understand what the risk-neutral probabilities are in the binomial framework
Understand the fundamental theorems of asset pricing in a binomial framework
Understand the european pricing of options in a Black-Scholes (continuous time) framework
Understand the application of Black-Scholes pricing formula in corporate finance.

Course description

Chapter 1 Valuation using the no-arbitrage principle.
Chapter 2 Pricing derivatives using the binomial framework.
Chapter 3 Pricing derivatives in continuous time Black-Scholes framework
Chapter 4 Application of the Black-Scholes model in corporate finance: introduction to credit risk.

Class type

Class structure

Teaching methods

• Case study
• E-learning
• Interactive class
• Tutorial

Assessment

The assessment of this course wille make sure that students understand the concepts used for derivatives pricing.

Recommended reading

• Fundamentals of Futures and Options Markets - Hull, J.C. (7th edition. Prentice Hall, 2008) -

• An Introduction to Derivatives and Risk Management, D Chance, R Brooks, 8th edition, Hartcourt. -

• Futures, Options, and Swaps, Kolb, Overdahl, Blacwell Publishing, 2007. -