AIN4220 - Derivatives Valuation
|Year of Study:||3 – 4|
|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.|
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.
Upon completion of this module, students should be able to:
- analyse the payoff and characteristics of the derivatives introduced;
- apply the no arbitrage assumption, risk neutral probability, and concept of replicating portfolio in pricing and hedging;
- calculate and analyse the price of various derivatives; and
- explain the nature of Greeks and apply the techniques of hedging.