Credits: 9

Type: professional

Objectives:

To consider arbitrage theory in the pricing of financial derivatives in discrete time and to learn to resolve problems of portfolio optimisation.

Knowledge:

• Financial market in discrete time. Arbitrage.
• Derivatives: pricing and hedging.
• Discrete time martingales. First fundamental theorem.
• Complete market . Second fundamental theorem. Calculating European option prices. The Cox-Ross-Rubinstein model.
• From discrete to continuous time: the Black-Scholes formula.
• American options. The Snell envelope. Hedging and pricing. Useful functions. Portfolio optimisation.

Subject-specific competences:

• To know the two fundamental theorems of arbitrage theory and be able to apply these in elemental cases.
• To be able to implement binomial options pricing models for the approximate pricing of European and American options in the Black-Scholes model.
• To know the different techniques used to resolve problems of portfolio optimisation.