This course provides students with a set of competencies focused on:
(i) the different characteristics of forwards, futures, and options,
(ii) the pricing of derivatives,
(iii) the quantification of risks, and
(iv) the practical use of derivatives.

In addition to a theoretical understanding of pricing and risk analysis, the course emphasizes the practical application of these instruments to real-world problems.

Upon completion of this course, students will be able to:

• Differentiate the key features and product characteristics of various derivatives and understand their impact on pricing and price dynamics.
• Recognize the importance of spot and futures markets and distinguish their different use cases.
• Understand the fundamental principle of arbitrage-free pricing and apply the concept of risk-neutral valuation to different derivatives.
• Use replication as a fundamental method for arbitrage-free valuation.
• Manage the use of derivative financial instruments as hedging tools for market risks.
• Understand the concepts of the "Greeks" and apply them to risk management.
• Distinguish between static and dynamic hedging strategies.
• Differentiate between speculation, arbitrage, and hedging and understand the corresponding use of derivatives.
• Apply analytical methods in self-study to solve financial problems.
• Assess the relevance of theoretical analysis for the practical use of financial instruments.
• Recognize the relationship between an instrument’s cash flow structure and the resulting incentive effects.
• Understand the overall societal importance of financial markets, particularly derivative markets.
• Evaluate the societal impact of speculation, arbitrage, and hedging.
• Make informed judgments on the use of derivatives for practical problem-solving.
• Identify and analyze academic literature, highlighting its key contributions.
• Assess the importance of different models and methods of derivative financial instruments in financial economics.

This course is a PI course with 80% attendance, this means students need to attend 80% of the lectures, irrespective of whether lectures are held on campus or online.

The course employs various teaching and learning methods. A large portion of the content is presented through lectures. To enhance understanding, individual practical examples as well as case studies are covered. Additionally, the information media available at the institute, such as Bloomberg, are used. Furthermore, the lessons are enriched with discussions on practical case studies, promoting interactive elements.

• 2 short tests during regular class hours (30%)
• Final exam (70%)

Please log in with your WU account to use all functionalities of read!t. For off-campus access to our licensed electronic resources, remember to activate your VPN connection connection. In case you encounter any technical problems or have questions regarding read!t, please feel free to contact the library at readinglists@wu.ac.at.