FINANCIAL INSTRUMENTS: THEORY AND REGULATION
Present the fundamental models used in finance and discuss characteristics of of financial instruments (derivatives and not). Economic aspects at the regulatory level will be discussed with attention to financial market abuse.
Formally no one; Knowledge of the forward and future methodological tools and the related price formation process make it easier to understand the topics
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The course discusses preferences theory under uncertainty, mean-variance models, the CAPM and the CCAPM, construction and analysis of a portfolio, also along the lines of Black-Litterman model and the Arbitrage Pricing Theory. Next, it is presented a technical overview of stochastic processes and Itô 's Lemma; Black and Scholes model are then presented and financial derivatives such as swaps, options, and interest rate derivatives (caps, floors, collars) are discussed; Black model is presented together with the main interest rate models; eventually, the course discusses the pricing of options using excel; stochastic processes and Monte Carlo simulations; a final discussion of selected issues in regulation concludes the course.
Course organization: The course includes frontal lessons, during which the topics of the program and exercises will be discussed, and recitations to discuss concrete cases
Learning assessment: Verification is based on structured written test in order to assess the achievement by the student of the educational goals, with optional oral exam; special examinations and midterms are offered for attendants.
Fundamentals Models in Financial Theory, Doron Peleg;
Opzioni, futures ed altri derivati, IX edizione (o precedenti), John C. Hull, Pearson Prentice Hall.
Additional details and readings will be provided during the course
Verification is based on structured written test in order to assess the achievement by the student of the educational goals, with optional oral exam; special examinations and midterms are offered for attendants.
Applying knowledge and understanding: The student will be able to apply the criteria of the stochastic dominance, the CAPM, the C-CAPM, the Arbitrage Pricing Theory, the Black-Litterman model, the main pricing models of derivative financial instruments (binomial trees, Black and Scholes model, Black model, rate models for interest rate swaps).
Making judgments: The student must demonstrate that she/he has developed a critical ability to assess the dynamics of financial markets and pricing techniques.
Communication: The student must be able to respond clearly, punctually and comprehensively both to the written test questions and to any oral exam with the aid of mathematical models and graphs.