This course covers the exciting and yet dangerous world of derivatives. Its main focus is on financial futures and options as the two most basic forms of derivatives with about 40% of the course devoted to futures and the remaining 60% to options. The primary objective of the course is to understand the pricing theories (
the binomial model of Cox, Ross, and Rubinstein and the original Black-Scholes model)
, trading strategies, and the use of futures and options in risk management. We will also have a chance to talk a bit about
financial engineering, which involves creation of new securities and development of innovative solutions to financial problems. The course aims at helping students to develop a solid and intuitive understanding of financial derivatives with the minimum use of mathematics.
Introductory finance (e.g., discounting, CAPM and so on) is the only formal prerequisite. All the mathematics needed for this course will be explained in class. While no prior knowledge of mathematics beyond high-school calculus is required, a mathematically oriented person will find this course easier to swallow.