This course introduces the derivatives market basics, including forwards, futures, and options markets. In 1. This course introduces the derivatives market basics, including forwards, futures, and options markets.
2. The fundamental differences between valuing and investing in derivatives versus valuing and investing in primary securities.
3. We will also introduce the concepts of replication, such as hedging, relative valuation, and arbitrage trading.
i. Put-call parity: (risk-neutral valuation, no-arbitrage condition)
ii. The stochastic process (Brownian motion) to characterize the process of stock return will be introduced.
iii. Replicated methods for no-arbitrage option pricing.
4. Profit and loss attribution and risk management by option position will be illustrated as well.