Number: 45814
Title: Options
Concentration: Finance
Prerequisites: (45810 - Corporate Finance) OR (45811 - Investment Analysis)
Description: The primary focus is on pricing and hedging contingent claims--that is assets with option-like features. Examples include calls puts warrants bank loans and underwriting contracts. The models to be studied include Black-Scholes binomial and risk-neutral Monte Carlo pricing. Specific topics include simple no-arbitrage pricing relations most notably put-call parity delta kappa and gamma hedging implied standard deviations and their statistical properties exotic options portfolio insurance and other dynamic option replication trading strategies and futures and forward contracts. By its very nature the course uses way too much mathematics and statistics. However of all subjects in finance the area of derivatives securities has used these tools to the greatest profit. Our goals are 1 to become proficient at the fundamental option calculations and 2 to take a peak inside the “black box” so as to understand the pros and cons of the most widely used models.