Financial Markets Theory

Relations:

The course 18ZDFT can be graded only after the course 18TFT has been successfully completed.

Course guarantor:

Quang Van Tran

Lecturer:

Quang Van Tran, Nichita Vatamaniuc

Tutor:

Quang Van Tran, Nichita Vatamaniuc

Supervisor:

Department of Software Engineering

Synopsis:

Since financial instrument prices are unknown in advance to financial market participants, financial derivatives are currently being used as common instruments to eliminate risks arising from price instability of financial assets. The theory of financial markets uses the knowledge of mathematical analysis and statistics to manage the portfolio of risk assets and the valuation of sophisticated financial instruments in the form of derivatives such as swaps, forwards, futures and options.

Requirements:

Basic knowledge of mathematical analysis, mathematical statistics and probability theory

Syllabus of lectures:

1. The financial market and its functioning

2. Financial instruments: risk-free assets

3. Financial Instruments: risk assets

4. Dynamics of prices of financial instruments

5. Portfolio management

6. Term contracts: swaps, forward and futures

7. Options and their basic features

8. Black-Scholes formula and option pricing

9. Alternative way to deduce the Black-Scholes formula

10. Financial engineering using options

11. Volatility and its modeling

12. Models of time structure of interest rate

13. Other stochastic models of derivative valuation

Syllabus of tutorials:

The structure of exercises is identical to lectures. Exercises are focused on typical problems from each topic.

1. The financial market and its functioning

2. Financial instruments: risk-free assets

3. Financial Instruments: risk assets

4. Dynamics of prices of financial instruments

5. Portfolio management

6. Term contracts: swaps, forward and futures

7. Options and their basic features

8. Black-Scholes formula and option pricing

9. Alternative way to deduce the Black-Scholes formula

10. Financial engineering using options

11. Volatility and its modeling

12. Models of time structure of interest rate

13. Other stochastic models of derivative valuation

Study Objective:

Overview of financial derivatives and their valuation, basics of modeling and analysis of their behavior

Study materials:

Recommended reading:

[1] Hull J. C.. Options, Futures, and Other Derivatives, 8e. Boston: Prentice Hall, 2012

[2] Hirsa, A., Neftci, S. N.. An Introduction to the Mathematics of Financial Derivatives, 3e. Amsterdam: Elsevier, 2014.

[3] Shreve S.. Stochastic Calculus for Finance II. Berlin: Springer, 2004

[4] Francis J. C., Kim D.. Modern Portfolio Theory- Foundations, Analysis, and New Developments. New Jersey: John Wiley and Sons, 2013

Note:

Time-table for winter semester 2024/2025:

	06:00–08:0008:00–10:0010:00–12:0012:00–14:0014:00–16:0016:00–18:0018:00–20:0020:00–22:0022:00–24:00
Mon
Tue
Wed	roomTR:045 Tran Q. 08:00–09:50 (parallel nr.101) Trojanova 13
Thu	roomTR:045 Tran Q. 16:00–17:50 (lecture parallel1) Trojanova 13
Fri

Time-table for summer semester 2024/2025:

Time-table is not available yet

The course is a part of the following study plans:

• Aplikované matematicko-stochastické metody (elective course)
• Aplikace informatiky v přírodních vědách (elective course)