AIN4221 - Advanced Derivatives Valuation

Year of Study:3 - 4
Credit Units: 3
Duration: 45hours
Prerequisites: AIN3100 Stochastic Processes with Applications and AIN4220 Derivatives Valuation; or with the Module Coordinator’s permission and upon endorsement of the relevant Head
Module Description
This module aims to introduce the features, uses of asset price models, and the pricing and hedging of financial derivatives in continuous time model. Topics include review of deterministic calculus, Brownian motion, martingale, stochastic integration, Itô’s lemma, risk neutral measure, Black-Scholes-Merton equation, European- and American-style derivatives, implied volatility, tree models, Monte Carlo methods and Greeks.
Learning Outcomes
Upon completion of this module, students should be able to:
  1. analyse functions with the concept of calculus and Taylor expansion;

  2. evaluate and discuss the properties of different variations of Brownian motion and lognormal distribution;

  3. explain various important financial concepts including risk neutral pricing, implied volatility, and put-call parity;

  4. analyse the price of derivatives with Ito’s lemma, Black-Scholes-Merton equation and related concepts;

  5. and evaluate derivative price with Monte Carlo simulation or other techniques.