By the end of this course, students will be able to:
- describe the main derivative instruments (forwards, futures, swaps, options, credit derivatives), the markets on which they trade, and the roles of market participants (hedging, speculation, arbitrage);
- price linear derivatives (forwards, futures, swaps) using the no-arbitrage principle, and explain the mechanics of organised markets (margin calls, clearing);
- price options with the binomial and Black-Scholes-Merton models, interpret the notion of risk-neutral probability, and measure the sensitivities of prices to risk factors (the Greeks);
- design and analyse hedging strategies and simple derivative-based structures that address a concrete risk-management problem faced by a firm or a financial institution;
- identify the risks specific to the use of derivatives (leverage, liquidity, counterparty and model risk) and critically assess their uses, drawing on real-world cases.
The course introduces the main types of derivative contracts (forwards and futures, swaps, options, credit derivatives), their uses (risk hedging, arbitrage, speculation) and the ways they are traded (organised exchanges, including the mechanics of margin calls and clearing, and over-the-counter markets). It then develops the valuation of these instruments under the no-arbitrage principle: pricing of forwards and swaps, followed by option pricing with the binomial model and the Black-Scholes-Merton formula, together with the notion of risk-neutral probability and the sensitivities of prices to risk factors (the Greeks). The final part of the course covers the risks involved in using derivatives (leverage, liquidity, counterparty and model risk), credit derivatives, and real-world case studies illustrating the uses, and misuses, of these instruments.
The course sessions are divided into two parts: the presentation of the theoretical concepts and the completion of exercises. Students are required to read selected parts of the reference textbook in order to prepare for the sessions.
The evaluation consists of two parts. Group case studies, presented during the final session. A written closed-book exam.
| Training | Study programme | Block | Credits | Mandatory |
|---|---|---|---|---|
| Master in Management | Standard | 1 | 5 | Yes |
| Master in Management | Finalité didactique | 1 | 5 | Yes |
| Master in Management, Professional focus in Digital Enterprise Transformation | Standard | 1 | 5 | No |
| Master in Management | Finalité spécialisée | 1 | 5 | Yes |
| Master in Business Engineering | Finalité spécialisée en data science | 1 | 5 | Yes |
| Master in Business Engineering | Finalité spécialisée en Sustainable & Digital Management | 1 | 5 | Yes |
| Master in Business Engineering | Finalité spécialisée en Sustainable & Digital Management | 2 | 5 | Yes |
| Master in Management | Finalité didactique | 2 | 5 | Yes |
| Master in Management, Professional focus in Digital Enterprise Transformation | Standard | 2 | 5 | No |
| Master in Management | Finalité spécialisée | 2 | 5 | Yes |
| Master in Business Engineering | Finalité spécialisée en data science | 2 | 5 | Yes |