Derivative Securities Course of MFin at University of Hong Kong
MFIN6003B
Derivative Securities
1
Chang, Eric C.
General Information
Futures and options contracts are among the most actively traded derivative instruments. They are utilised either to earn a leveraged gain or to reduce portfolio risks. This course will provide basic concepts on the market structure, trading and hedging strategies, and the pricing of the actively traded instruments. Using arbitrage arguments, we will develop the binomial model, the Black-Scholes options pricing model, and several extensions of the Black-Scholes model. We will discuss the intuition behind the principle of risk-neutral valuation and the concept of equivalent martingale probabilities. We will apply the concepts to design and price some popular OTC products such as equity-linked notes, yield-enhanced notes, and principal guaranteed funds. We will discuss the risk exposure implications to risk managers with the presence of the model misspecification problem in trading strategies such as dynamic hedging, index arbitrage and programme trading. We will also consider stock index and foreign currency derivatives.