DERIVATIVE INSTRUMENTS

Course objectives

Knowledge and ability to understand / ability to apply knowledge and understanding: At the end of the course the student will be able to: • understand the main types of derivatives (forward/future, options, swaps, credit derivatives), the functioning of the related markets, the main option strategies, the pricing and the risk measure of them; • calculate the MTM of the main derivatives, the main risk profiles, the capital requirement of the the option; apply static and dynamic hedging schemes in the typical activities of the Risk Manager. Autonomy of judgment and communication skills: At the end of the course the student will be able to manage the technical and operational complexity of the derivatives world, to determine the different "values", to illustrate to the interlocutors specialists of the financial sector the main technical-legal characteristics of the derivatives.

Channel 1
PASQUALINA PORRETTA Lecturers' profile

Program - Frequency - Exams

Course program
INTRODUCTION Stock markets, the OTC market, and clearinghouses; IDEM market: operators and products; • The different types of derivatives and their purposes: introduction; • Forward contracts: forwards and futures;• How futures markets work; • Hedging strategies using futures; • Cross hedging; • Beta changing; Basis risk; • Types of interest rates; • Determination of Treasury zero rates; • Duration and convexity; • The cost of carry; • Determination of Forward prices and Futures prices; • Rules for calculating days and quotations; • Interest rate futures; • Stock index futures; • Exercises; PART I: SWAPS• Interest rate swaps; • Use of swaps; • How Libor/swap zero rates are determined; • Overnight Indexed Swap; • Currency swaps; • Other types of swaps; • Swap pricing ;• Risk-neutral pricing; • Use of derivatives in public entities ;• Exercises; PART II: OPTIONS • How the options market works. The IDEM market; • Fundamental properties of equity options; • Put-call parity; • Lower and upper bounds of options; • Dividend effect; • Wiener processes and Ito's Lemma; • Option pricing and the Black-Scholes-Merton model; • The Greek letters: meaning, sign, uses; • Numerical procedures: binomial trees; • Value at Risk; PART III: OTHER DERIVATIVES • Interest rate derivatives: caps, floors, collars and swaptions; • Credit derivatives and the financial crisis; • Counterparty risk and capital requirements
Prerequisites
Fundamentals of Financial Mathematics
Books
J.C.Hull, Opzioni, futures e altri derivati, Pearson-Prentice Hal
Frequency
Not mandatory but recommended
Exam mode
The written test will consist of 15 questions, three of which relate to the theory of matter and the remaining ones dedicated to the pricing of the various categories of derivatives analyzed during the course and/or hedging operations or other operational topics covered during the exercises. The oral exam will complete the assessment and will be dedicated to the thematic areas of the written test.
Lesson mode
Lectures, work groups, and exercises in the computer lab. Additional information on the teacher's Moodle platform.
  • Lesson code1035692
  • Academic year2025/2026
  • CourseFinancial institutions, international finance and risk management
  • CurriculumCorporate finance e investment banking (percorso formativo valido anche ai fini del conseguimento del doppio titolo italo-belga o del doppio titolo italo-francese)
  • Year2nd year
  • Semester1st semester
  • SSDSECS-P/11
  • CFU6