INTRODUCTION TO OPTIONS AND FUTURES

Course Code 30150

2014-2015
Lecturer:
Kim Peijnenburg, Email: kim.peijnenburg@unibocconi.it, office 2-E2-01 via Roentgen
Teaching assistant:
Olga Balakina, Email: olga.balakina@phd.unibocconi.it
1. Aims and objectives of the course
The course aims at providing an understanding of the markets for derivatives instruments (forwards,
futures options and swaps) and of their uses for hedging and trading by corporations and financial
institutions. The course will also focus on pricing methodologies and market value calculations.
We assume students have a basic knowledge of the functioning of derivatives (e.g. the difference
between Exchange traded and over the counter derivatives) and of the characteristics and valuation
of the underlying assets (stocks and bonds).
2. Core topics
Forwards and Futures contracts
Contract specifications and uses. Forward prices, Forward exchange rates, Forward interest rates.
The valuation of forwards contract. The basis risk. The optimal hedge ratio.
Swaps
Contract specifications, uses, Pricing and contract valuation.
Options.
Main options contracts and their characteristics. The factors influencing option prices. Valuation of
options through the binomial model and Black and Scholes. Stochastic processes. Options Greeks
and their role in option trading strategies. Hedging with options. Trading strategies with options.
Volatility smile.
Interest rate derivatives:
Bond options, caps, floors.
3. Classes
Lectures will be scheduled as follows.
Day
Wednesday
Thursday
Wednesday
Thursday

Time
Class 31
8.45-10.15
14.30-16.00
Class 32
10.30-12.00
16.15-17.45

Classroom
Perego
Perego
Perego
Perego

4. Evaluation Process.
There will be a written final exam covering all classes. The exam is based on exercises resolution.
To participate in the final exam all students must be enrolled and registered for the exam. No
exceptions will be considered.

5. Textbook
The textbook is
J. Hull, Options, futures and other Derivatives Prentice Hall, Eight edition.
The solutions manual for this book:
J. Hull, Options, futures and other Derivatives Solutions Manual Prentice Hall, Eight edition.
6. Office hours are on Wednesday from 17.00-18.00. Send me an email to make an appointment to
go to the office hour.
7 Web learning
Any additional material will be posted on the elearning application for the course.
8. Syllabus
The following is an indicative syllabus.
N.
Chapter Hull
Topic
1
1
Course Description. Derivatives introduction
2
2
Mechanics of futures markets
3
3
Hedging with futures
4
4
Interest rates
5
4
Interest rates
6
5
Pricing of forwards and futures
7
5
Pricing of forwards and futures
8
7
Swaps
9
7
Swaps
10
9
Options
9-10
11
Options
10
12
Options
13
11
Trading strategies involving options
14
12
Binomial trees
15
12-13
Binomial tree, wiener process and Itos lemma
16
13-14
Black-Scholes
17
14
Black-Scholes
18
18
The Greek letters
18
The Greek Letters
19
20
19
Volatility smiles
19 plus Exam
Volatility smiles and exam practice
21
practice
22
28
Interest rate derivatives
23
23- 24
Credit risk and credit derivatives
24
Exam practice Exam practice