28C00450 - Derivatives and Fixed Income, 11.01.2021-22.02.2021

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Please note! Course description is confirmed for two academic years, which means that in general, e.g. Learning outcomes, assessment methods and key content stays unchanged. However, via course syllabus, it is possible to specify or change the course execution in each realization of the course, such as how the contact sessions are organized, assessment methods weighted or materials used.

LEARNING OUTCOMES

By the end of the course students will be able to show detailed understanding of the derivatives markets, the instruments and the principles of risk management. The course reflects both theory and practice and it covers diverse areas such as equity, index, foreign currency, commodity and fixed income derivatives.

Credits: 6

Schedule: 11.01.2021 - 22.02.2021

Teacher in charge (valid 01.08.2020-31.07.2022): Sean Shin, Matti Suominen

Teacher in charge (applies in this implementation): Sean Shin, Matti Suominen, Yu Xiang

Contact information for the course (valid 18.12.2020-21.12.2112):

Instructor: Matti Suominen (Derivatives Part); Sean Seunghun Shin (Fixed Income Part)
E-mail: matti.suominen@aalto.fi; sean.shin@aalto.fi
Office hours: by appointment 
Teaching Assistant: Yu Xiang(yu.xiang@aalto.fi)

CEFR level (applies in this implementation):
Language of instruction and studies (valid 01.08.2020-31.07.2022):
Teaching language: English
Languages of study attainment: English
CONTENT, ASSESSMENT AND WORKLOAD
Content
  • Valid 01.08.2020-31.07.2022:
    Main topics are arbitrage, binomial models, Black & Scholes model, extensions to Black & Scholes model, interest rate derivatives, exotic options, and issues in risk management.
  • Applies in this implementation:
    The first part of the course provides an introduction into the basic concepts of derivatives. The course introduces three types of derivatives - Options, Futures and Swaps - and outlines hedging and pricing techniques. During the second half, this course explores important features of fixed income markets, covers fundamental concepts about bonds and terms structure, and develops tools for the valuation and risk management of the fixed income securities.
Assessment Methods and Criteria
  • Valid 01.08.2020-31.07.2022:
    1. Lectures
    2. Exercises and cases (50%)
    3. Written examination (50%). The examination will be based on the lectures, handouts and the course literature.
  • Applies in this implementation:
    The final grade (0 – 5 scale) is based on total points (max 100 points); combining assignments (50 %) and exam (50 %) points. To pass the course, you have to get at least 40% of exam points, i.e. 20 points. Conditional on that, your final grade is based on the following scale:   
    90≤x≤100:Final grade = 5
    80≤x<90:Final grade = 4
    70≤x<80:Final grade = 3
    60≤x<70:Final grade = 2
    50≤x<60:Final grade = 1
    0≤ x<50:Final grade = 0, Fail
    In this course, cheating and/or plagiarism (such as copying assignments and/or case studies used in other courses and/or from other students) will result in a score of zero on the assignments. For example, if two assignments from two different individuals (or groups) are identical, BOTH will get a zero score on the assignments. Any types of cheating activities during the exams will result in, at a minimum, a grade of “0”. 

Workload
  • Valid 01.08.2020-31.07.2022:
    Classroom hours 24 h
    Exercise hours 12 h
    Class preparation 34 h
    Exercise preparation 50 h
    Exam preparation 36 h
    Exam 3 h
DETAILS
Study Material
  • Valid 01.08.2020-31.07.2022:
    Recommended text for fixed income part: Handbook of Fixed Income Securities by Pietro Veronesi
    Recommended text for the derivatives part: Options, Futures, and Other Derivatives by John C. Hull
    Other material distributed by the lecturer.
  • Applies in this implementation:
    The main reference for this course will be the class slides, which will be posted on MyCourses. The readings and other materials will also be provided through MyCourses. The exam will cover all materials and papers that appeared in the lecture notes.

Substitutes for Courses
  • Valid 01.08.2020-31.07.2022:
    Substitutes a course 28C00400 Derivatives and Risk Management. It is possible to include only one of these courses into the degree.
Prerequisites
  • Valid 01.08.2020-31.07.2022:
    Rahoituksen perusteet or Principles of Corporate Financial Management
SDG: Sustainable Development Goals
    1 No Poverty
    8 Decent Work and Economic Growth
FURTHER INFORMATION
Details on the schedule
  • Applies in this implementation:
    Lectures:
    #1. Introduction. Option Payoffs. Put-call Parity  on 11.1, Mon 
    #2. The Binomial Model on 14.1, Thu
    #3. The Black & Sholes Model on 18.1, Mon  
    #4. Corporate Securities with Option Characteristics on 20.1, Wed  
    #5. Real Options, Forwards and Futures on 25.1, Mon
    #6. Risk Management with Derivatives on 28.1, Thu
    #7. Introduction to Fixed Income Markets on 1.2, Mon
    #8. Bond Pricing: Basic concepts on 4.2, Thu
    #9. Yield to Maturity, Negative Yield Bonds, and Monetary Policy on 8.2, Mon
    #10. Duration, Convexity, and Immunization on 11.2, Thu
    #11. Term Structure and Fixed Income Investment Strategies on 15.2, Mon
    #12. Term Structure and Fixed Income Investment Strategies (Continued) on 18.2, Thu
    #13. Exam on 22.2, Mon
    Exercise sessions: Please check the MyCourses schedule.

Rules of Conduct - Students´ Rights and Responsibilities (in force from 1 August 2020)
Aalto University Code of Academic Integrity and Handling Violations Thereof