154-0540/02 – Valuation and Hedging of Financial Derivatives (VHFD)
| Gurantor department | Department of Finance | Credits | 3 |
| Subject guarantor | prof. Ing. Tomáš Tichý, Ph.D. | Subject version guarantor | prof. Ing. Tomáš Tichý, Ph.D. |
| Study level | undergraduate or graduate | Requirement | Choice-compulsory type B |
| Year | 2 | Semester | winter |
| | Study language | English |
| Year of introduction | 2019/2020 | Year of cancellation | |
| Intended for the faculties | EKF | Intended for study types | Follow-up Master |
Subject aims expressed by acquired skills and competences
This course aims at pricing, hedging and modeling of financial derivatives as well as primary financial securities. The aim of the course is
- to improve the knowledge and skills of students
- so that they will be able to apply acquired knowledge
- in order to efficiently utilize financial derivatives within risk management issues of both, financial and nonfinancial institutions;
- the students should be able to formulate pricing and hedging task and subsequently propose an efficient approach to solve it.
Teaching methods
Lectures
Summary
Within this course, particular problems of financial derivatives, their pricing, hedging, replication and modelling in general are treated. At first, particular sorts of derivatives, methods of pricing and most common types of underlying assets and related processes are introduced. Subsequently, these methods and types of underlying assets are applied in order to model the price of basic types of financial derivatives. Single topics are constituted by nonstandard derivatives.The task is to allow the students to use obtained knowledge in solving of real problems.
Compulsory literature:
HULL, J.C. Options, futures, and Other Derivatives. 11th ed. Harlow: Pearson, 2022.
HULL, J.C. Risk Management and Financial Institutions. 5th ed. New York: Wiley, 2018.
TICHÝ, T. Lévy Processes in Finance: Selected applications with theoretical background. SAEI, vol. 9. Ostrava: VŠB-TU Ostrava, 2011.
Recommended literature:
NEFTCI, S. Principles of Financial Engineering. 2nd ed. Academic Press, 2008.
SCHOUTENS, W. Lévy Processes in Finance: Pricing Financial Derivatives. Wiley, 2003.
SHREVE, S.E. Stochastic Calculus for Finance I: The Binomial Asset Pricing Models. Springer, 2004.
SHREVE, S.E. Stochastic Calculus for Finance II: Continuous-Time Models. Springer, 2004.
Additional study materials
Way of continuous check of knowledge in the course of semester
E-learning
Other requirements
There are no additional requirements on any student
Prerequisities
Subject has no prerequisities.
Co-requisities
Subject has no co-requisities.
Subject syllabus:
1. Introduction (financial markets, financial derivatives, valuation approaches, models and software).
2. Nonlinear financial derivatives (forwads, futures, swaps).
3. Linear financial derivatives (vanilla options, exotic options, real options).
4. Stochastic processes (klassification, models, usage).
5. Black-Scholes-Merton (assumptions, derivatives, application).
6. Continuous models II (underlying, payoff, processes).
7. Numerical approximation (lattices, PDE, AI).
8. Simulation Monte Carlo (simulation, error, applications).
9. Interest rates and derivatives (classification, models, appication, credit risk).
10. Exotic derivatives (commodities, weather, energy).
11. Non-financial institutions (assumptions, risk, usage).
12. Financial institutions (assumptions, risk, usage).
Conditions for subject completion
Occurrence in study plans
Occurrence in special blocks
Assessment of instruction
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