Financial Derivatives

Recommended Prerequisites

Basic knowledge on spot financial markets.

Teaching Methods

Theoretical-tutorial lectures based on expositive and interactive methods and through the use of audiovisual techniques. In these lectures students carry out individual practical works and group discussion of problems in a real world framework. These lectures are complemented with office hours for individual attendance.

Learning Outcomes

Overall objectives
This is an introductory-medium level course on exchange-traded financial derivatives. This course aims to provide an overview of the terminology and concepts particular to this field of finance and to develop basilar abilities to valuate derivatives and to use them as hedging devices.

Specific objectives
- Understand information on financial derivatives and on their underlying assets.
- Apply basic pricing methodologies to these derivatives.
- Design and evaluate derivatives strategies to hedge risks. 

Generic competencies
- Capacity for analysis and synthesis.
- Problem formulation and solving.
- Capacity for learn.
- Critical and self-critical ability.

Specific competencies
- Ability to understand public information on financial derivatives and on their underlying assets.
- Capacity for applying basic pricing methodologies to derivatives.
- Capacity for designing and evaluating derivatives strategies to hedge risks. 

Work Placement(s)

No

Syllabus

    1. Basic concepts on financial derivatives

    2. Interest rate risk and stock risk

    3. Traders in the derivatives markets

    4. Payoffs of forward, futures and option contracts

    5. Organization and procedures of the derivatives exchanges

    6. Forward and futures contracts pricing

    7. Hedging with forward and futures contracts

    8. Interest rate swaps and currency-interest rate swaps

    9. Properties of option prices

  10. The binomial option pricing model

  11. The Black-Scholes option pricing model

  12. Hedging with options and portfolio insurance

  13. Introduction to credit derivatives.

Head Lecturer(s)

Hélder Miguel Correia Virtuoso Sebastião

Assessment Methods

Assessment
Exam (100%) or final exam (60%), tests (20%) and individual assigments (20%): 100.0%

Bibliography

HULL, John C. — Options, Futures and other Derivatives. Upper Saddle River: Prentice-Hall/Pearson Education International (5th or more recent edition) 

SEBASTIÃO, Helder M.C.V. — Lições de Derivados Financeiros, FEUC, 2014. Disponível em | Available at: https://inforestudante.uc.pt/

SEBASTIÃO, Helder M.C.V. — Caderno Prático de Derivados Financeiros, FEUC, 2014. Disponível em | Available at: https://inforestudante.uc.pt/