Derivative assets 2 Term 2012/2013 Master in Business Program Jos Filipe Corra Guedes Goals This course studies

a particular class of financial assets, named derivative assets, whose value derives from other financial assets, referred to as the underlying asset. Derivative assets play a key role in modern capital markets, representing today many trillion USD. They are an important instrument available to financial managers to manage their companies risk exposure. In this course we will examine the properties and characteristics of key derivative assets, such as forward contracts, future contracts and options, with a emphasis on the pricing of such instruments. References 1) Class slides (posted in courses web site) 2) Options, futures and other derivatives, John Hull, Pearson Prentice Hall, eighth edition. 3) Problem sets (posted in the courses website) Student assessment - Final exam: 60%; - Group Project: 35% (information about the group project will be disclosed later on) - Homework: 5% Program outline 1. Introduction. Derivative assets and the process of financial innovation (Hull, Chapters 1 and 2) 2. Forwards and Futures on stocks, portfollios of stoks, foreign exchange and commodities (Hull, Chapter 5) 3. Options (Hull: Chapters 9, 10, 11, 12, 13, 14, 16) Institutional environment and background; Portfolios of options; Pricing, based on no-arbitrage restrictions; Pricing, based on binomial model; Pricing, based on Black-Scholes model. Applications of Black-Scholes 4. Introduction to risk management (Chapter 18) The Greeks Delta-hedging