Home page of Business 35132 (former 439). Prof. Pietro Veronesi
Financial Engineering: Mathematical Models of Option Pricing
Course Overview
It is a fact that
derivatives’ markets are skyrocketing. As of December 2004, the total market
value of over-the-counter derivatives was $9.1 trillion, a 45% increase over
its value in December 2002. The credit derivatives market showed an even faster
growth in the last few years, from $2 trillion in 2002 to about $5 trillion in 2004,
and to a projected $8 trillion by 2006. These numbers should be compared with
the sizes of more traditional markets, such as the US Treasury public debt ($4
trillion), mortgage-backed securities ($5.4 trillion), and corporate debt ($4.7
trillion). This astonishing surge in demand for derivative securities from end
users and investors alike generates profitable opportunities for hedge funds,
investment banks and trading derivatives desks.
This course covers the
analytical and numerical methodologies applied by hedge funds and derivatives
trading desks to price complex derivative securities and device arbitrage
strategies. We will apply these methodologies to several case studies, whose
topics range from relative value trades in equity options and fixed income
instruments, to the pricing of convertible securities using numerical methods.
About half of the course is devoted to the booming credit risk market. Case
analysis range from the pricing and hedging of credit derivatives, such as credit
default swaps (CDS), and to the valuation and risk analysis of cash and
synthetic collateralized debt obligations (CDO). We will discuss and analyze
the recent surge in credit market indices such as TRAC-X.
In a world of
increasingly higher sophistication, the valuation of complex derivative
securities and the design of arbitrage strategies require the understanding and
application of advanced models of option pricing, and their application to real
data. This course emphasizes both, and provides students with real world
problems to solve.
Important Clarification on Prerequisites:
The following classes are strict prerequisites: Business 35000 (or 35901), and 35100.
If you do not meet the strict prerequisites, SEND ME AN E-MAIL with a detailed explanation on why you think you have the necessary skills to take B35132 anyway.
To know more about the course, you can download a PDF file with the Course Syllabus
The
Teaching Notes;
The
Board;
The
Computer Files;
The
Assignments;
Data
;
You can contact me by sending your mail at pietro.veronesi@gsb.uchicago.edu
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