Module description
Syllabus
- Barrier Options, Asian options, Quanto options, Forward starting options.
- Local volatility models and the derivation of the Dupire formula.
- Stochastic volatility models - Heston, SABR, small-time asymptotics.
- Lévy models - pricing using inverse Fourier transforms, the Variance Gamma, CCMY and double exponential Kou models (time permitting).
Prerequisites
Students are normally expected to be taking in the same year (FT) or have taken and passed (PT) modules 7CCMFM01 and 7CCMFM02 or equivalent modules. Please contact your Programme Director should you not meet the above criteria.
Assessment details
Assessment
2 hr written examination or alternative assessment
Educational aims & objectives
To introduce exotic derivatives and advanced pricing models.
In foreign exchange and equity derivatives markets, the pricing of path-dependent options and use of local/stochastic volatility and Lévy models is an important issue. This course will equip MSc students with the relevant theoretical background and computational skills to understand these models and instruments.
Teaching pattern
2 hour lecture and 1 hour tutorial per week.
Suggested reading list
Suggested reading/resources (link to My Reading Lists)