Finanza quantitativa - eng

Quantitative Finance

Prof. Gianluca Fusai
Prof. Giovanni Longo

Course code: EC0022
Course SSD: SECS-S/06
8 CFU – 64 hours
Location: Novara





•    Language
English or Italian

•    Contents
There are two modules:

Module 1 – Term structure of interest rates, interest rate risk management, Black&Scholes formula and pricing of some classic derivatives.
(Prof. Giovanni Longo) - 4 CFU

Module 2 – Asset Allocation and market and credit risk measures.
(Prof. Gianluca Fusai) - 4 CFU


•    Course texts
Teaching materials prepared by the teachers and available on the web page of the course:
https://eco.dir.unipmn.it/

Other useful books (available in the department library):
Module 1:
J. Hull, Opzioni, futures ed altri derivati, Pearson Prentice-Hall International, 2009. Compreso il manuale con le soluzioni degli esercizi.
R. Jarrow e Turnbull, Derivative Securities, South Western, 1994.
Module 2
P. Jorion, Value at Risk, 3rd edition, Mc-Graw Hill.
P. Christoffersen, Elements of Financial Risk Management Academic Press.



•    Educational targets
Module 1: at the end of the couse  students should be able to bootstrap the interest rate curve from market data, to manage the interest rate risk of a portfolio and to price some classic derivatives of both interest rates and equities
Module 2: the module introduces the following subjets: risk premium evaluation, market and credit risk measures, pricing of some derivative products.

•    Prerequisites
It’s advisable to have passed the Metodi Quantitativi exam.

•    Educational methods
Lectures and execises on computers.
•    Other informations
Attending the class is highly recommended.

•    Exam methods
Practical exam on a computer. Written exam in english. During the course some individual or groupal coursework can be assigned to the students in order to integrate the final note.

•    Extended programme
Module 1 – Interest rate structure and derivatives (Prof. Giovanni Longo) - 4 CFU

Forward contracts. Characteristics of the contract, long and short positions, replicating portfolio, with dividend, and/or costs. Forward contracts on interest rates.

Financial options. Features of a standard contracts: call and put options, American and European. Variables that affect the price of the options. Restrictions on option prices. Modeling of the evolution of the underlying with binomial trees. Risk neutral probability. Pricing of an option with the binomial model. Delta of an option. Replicating portfolio (dynamic). The case of American options. The Black & Scholes model. Dynamic hedging. Limits of the Black-Scholes model. Some outlines to the Black model for rates, caps and floors. Introduction to Monte Carlo simulation and the pricing of derivatives.


Module 2 – Asset Allocation and market risk measurement (Prof. Gianluca Fusai) – 4 CFU

Markowitz model. Capital Asset Pricing Model and measuring the risk on equities. The beta. Capital market line. An arbitrage free model of the expected yield of a share: Arbitrage Pricing Theory. Relations between APT and CAPM. Roll’s criticizms and the problem of performance measurement. Equity and bond portfolio management: yield and risk measurement (standard deviation, value at risk (VAR) and expected shortfall (ES), duration and basis point value). Models for the evaluation of VAR and Expected Shortfall. Introduction to credit risk.