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Genesis and application of financial engineering. Causes of crashes on financial markets. Derivatives and risk factors. Symmetric and asymmetric instruments. The influence of symmetry on the method of risk measurement. Volatility and its role in derivatives valuation. Definition of speculation, arbitrage and hedging.
Term structure modeling. Yield curve and its role in the economy. Speculation on the yield curve in the Polish conditions with the use of forward contracts. Forward rates.
Application of derivatives in risk management. Reducing of market risk with options. Arbitrage with the use of futures contracts on WIG20 on the Warsaw Stock Market. Hedge fund strategies.
Counting forward and futures contracts prices. Forward contracts. Futures contracts on stock indexes. Currency futures. Commodity futures. Interest rate futures.
Valuation of swap contracts. Interest rate and currency swaps. Valuation of a swap as a long position and a short position in a bond. Valuation of a swap as a portfolio of two forward contracts.
Analysis of options sensitivity. Factors influencing an option's price. Delta. Gamma. Theta. Vega. Rho. Monitoring of parameters and the significance of delta in hedging positions.
Valuation of option contracts with the Black-Scholes model. The interpretation of the model. Assumptions. European options on stocks of companies not paying and paying a fixed rate dividend. The model for options on futures contracts. The Black-Scholes model. Put-call parity.Merton model. Garman - Kohlhagen model.
Valuation of options contracts with binomial trees. Assumptions for binomial models and their correctness. The definition and application of the hedge ratio. The value of one, two and three-period option.
Valuation of option strategies. Combinations of options with stocks. Strategies of the spread type (bull, bear and butterfly spread). Straddle, strangle, strip, strap.
Chosen kinds of exotic options and rules of their valuation. Time dependent options, compound options, binary options (forward-start option. Chooser option. Compound option. Binary option). Path-dependent options (Asian option. Barrier option. Lookback option). Exotic options on the Polish currency market.
Option warrants. Classification. Construction, valuation. Differences between options and warrants.
Hybrid instruments valuation. Bonds with an option (convertible,exchangeable), bonds with a warrant, bonds with a call option, bonds with a forward contract.
Weather derivatives. Genesis. Application and problems associated with it. Basic constructions of weather options. Problems with valuation. Weather indexes.
Non-standard instruments on the interest rate market and their valuation. Call option on a zero-coupon bond. Caplet. Forward cap. Forward floor. Swaptions.
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