A Course in Derivative Securities
This book is an outgrowth of notes compiled by the author while teaching courses for undergraduate and masters/MBA ?nance students at Washi- ton University in St. Louis and the Institut fur ¨ H¨ ohere Studien in Vienna. At onetime,acourseinOptionsandFutureswasconsideredanadvanced?nance elective, but now such a course is nearly mandatory for any ?nance major and is an elective chosen by many non-?nance majors as well. Moreover, students are exposed to derivative securities in courses on Investments, International Finance, Risk Management, Investment Banking, Fixed Income, etc. This - pansion of education in derivative securities mirrors the increased importance of derivative securities in corporate ?nance and investment management. MBA and undergraduate courses typically (and appropriately) focus on the use of derivatives for hedging and speculating. This is su?cient for many students. However, the seller of derivatives, in addition to needing to und- standbuy-sidedemands,isconfrontedwiththeneedtopriceandhedge.Mo- over,thebuyerofderivatives,dependingonthedegreeofcompetitionbetween sellers, may very likely bene?t from some knowledge of pricing as well. It is “pricing and hedging” that is the primary focus of this book. Through lea- ing the fundamentals of pricing and hedging, students also acquire a deeper understanding of the contracts themselves. Hopefully, this book will also be of use to practitioners and for students in Masters of Financial Engineering programs and, to some extent, Ph.D. students in ?nance.
The book is unusual in combining derivations of the pricing and hedging formulas, computer code implementing the formulas, and an introduction to computational methodsThe computational tools supplement the theory, allowing the inclusion of exercises of a practical natureHas a broad coverage of derivatives and can be used either for courses emphasizing computation or for courses emphasizing theoryUses almost exclusively the probabilistic (change of numeraire) approach, which is developed in the first chapter The VBA code is available in an Excel workbook, which includes examples of all of the functions (available on the internet)