AIN4220 - Derivatives Valuation

Year of Study:3 – 4
Credit Units: 3
Duration: 45hours
Prerequisites: AMS1302 Probability and Statistical Theory, AIN2001 Mathematics for Actuarial Studies and Insurance, and AMS2020 Financial Mathematics; or with the Module Coordinator’s permission and upon endorsement of the relevant Head.
Module Description
This module aims to introduce the features, uses, pricing and hedging of financial derivatives in discrete-time models. Topics include call and put options, European- and American-style derivatives, forwards, no-arbitrage pricing theory, binomial tree model and its relationship with the Black-Scholes formula, risk neutral probability, and Greeks.
Learning Outcomes
Upon completion of this module, students should be able to:

  1. analyse the payoff and characteristics of the derivatives introduced;

  2. apply the no arbitrage assumption, risk neutral probability, and concept of replicating portfolio in pricing and hedging;

  3. calculate and analyse the price of various derivatives; and

  4. explain the nature of Greeks and apply the techniques of hedging.