Dr Konstantinos Zachariadis, A462

Intended for students on the MSc Accounting and Finance. Optional for MSc Risk and Stochastics, MSc Financial Mathematics and MSc Applicable Mathematics.

This is a more advanced course. Students will be expected to show some familiarity with statistics, calculus and random processes.

Provides a thorough grounding in the theory of derivatives pricing and hedging.

This course develops the theories of no-arbitrage asset pricing. Particular emphasis is placed on pricing within a multi-period, mostly continuous-time, framework. A special feature of the course is its coverage of the modern theory of contingent claims valuation by PDE and martingale methods. These asset pricing-methods are applied to the pricing of vanilla and exotic options and corporate liabilities, forwards, futures, as well as fixed income derivatives. The uses of derivatives in hedging and risk-management are discussed as well.

20 hours of lectures and 10 hours of class Teaching in the LT.

Weekly problem sets in classes (10).

Teaching notes will be distributed. No one book covers the entire course. Books recommended include, in increasing level of difficulty, R. McDonald, Derivative Markets (2nd edn, Pearson Education, 2006), J Hull, Options Futures and Other Derivatives (5th edn, Prentice-Hall, 2003), and M Baxter & A Rennie, Financial Calculus (Cambridge University Press, 1996).

A two-hour written examination in the ST. Students answer three out of four questions.