- After successfully finishing this course, the student is able to:
- Explain various types of derivative products, in particular, European and American Call and Put Options;
- Recognize and create new financial products by combining various standard financial/derivative products;
- Identify the influence of different economic factors on option prices;
Calculate the (numerical) price of an Option using a binomial tree (option-delta and risk-neutral method).
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This course is a part of Module “Finance for Engineers” (202000410). In this course, derivative products, such as options, and futures are introduced. You will learn how they are used in financial decision-making. The focus of the course is the pricing/valuation of such derivative products, in particular different types of options. The general techniques such as no-arbitrage pricing theory and risk-neutral pricing theory will be explained. As applications of these, Binomial trees will be used in conjunction with the Option-delta method as well as discounted risk-neutral expectation to determine the price of European and American -- call and put -- options. Along the way, you will also learn the influence of different economic factors on option prices.
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Written exam (Option Pricing part of the combined test) (100%)
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