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Advanced Topics in Derivative Pricing
  • Level Professional
  • Duration 16 hours
  • Course by Columbia University
  • Offered by

About

This course discusses topics in derivative pricing. The first module is designed to understand the Black-Scholes model and utilize it to derive Greeks, which measures the sensitivity of option value to variables such as underlying asset price, volatility, and time to maturity. Greeks are important in risk management and hedging and often used to measure portfolio value change. Then we will analyze risk management of derivatives portfolios from two perspectives—Greeks approach and scenario analysis. The second module reveals how option’s theoretical price links to real market price—by implied volatility. We will discuss pricing by volatility surface as well as explanations of volatility smile and skew, which are common in real markets. The third module involves topics in credit derivatives and structured products and focuses on Credit Debit Obligation (CDO), which played an important part in the past financial crisis starting from 2007. We will cover CDO’s definition, simple and synthetic versions of CDO, and CDO portfolios. The final module is the application of option pricing methodologies and takes natural gas and electricity related options as an example to introduce valuation methods such as dynamic programming in real options.

Modules

Course Overview

    • 3 Readings
Show info about module content

3 Readings

  • Course Overview
  • About Us
  • Academic Honesty Policy

Review of the Binomial Model and the Black-Scholes Model

    • 2 Videos
    • 1 Readings
    • 1 Assignment
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1 Assignment

  • W2.1 Self-check Quiz

2 Videos

  • Review of the Binomial Model for Option Pricing
  • The Black-Scholes Model

1 Readings

  • Lesson Supplements

The Greeks

    • 4 Videos
    • 2 Assignment
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2 Assignment

  • W2.2 Self-Check Quiz
  • Graded quiz

4 Videos

  • The Greeks: Delta
  • The Greeks: Gamma
  • The Greeks: Vega
  • The Greeks: Theta

Risk Management of Derivatives Portfolios and Delta-Hedging

    • 3 Videos
    • 2 Assignment
Show info about module content

2 Assignment

  • W2.3 Self-Check Quiz
  • W2.4 Self-Check Quiz

3 Videos

  • Risk-Management of Derivatives Portfolios: Greeks Approach
  • Risk-Management of Derivatives Portfolios: Scenario Analysis
  • Delta-Hedging

The Volatility Surface

    • 2 Videos
    • 1 Assignment
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1 Assignment

  • W2.5 Self-check

2 Videos

  • Beyond Black-Scholes: Implied Volatility
  • Beyond Black-Scholes: Volatility Surface

Review

    • 1 Readings
    • 1 Assignment
Show info about module content

1 Assignment

  • Equity Derivatives in Practice: Part I

1 Readings

  • Quiz Instructions

The Volatility Surface in Action and Skew

    • 3 Videos
    • 1 Readings
    • 1 Assignment
Show info about module content

1 Assignment

  • W3.1 Self-Check Quiz

3 Videos

  • The Volatility Surface in Action
  • Why is There a Skew?
  • The Leverage Effect

1 Readings

  • Lesson Supplements

The Volatility Surface and Pricing Derivatives

    • 7 Videos
    • 2 Assignment
Show info about module content

2 Assignment

  • W3.2 Self-Check Quiz
  • W3.3 Self-Check Quiz

7 Videos

  • What the Volatility Surface Tells Us
  • Deriving the Marginal Risk-Neutral Distribution Using Volatility Surface
  • Pricing Derivatives Using the Volatility Surface
  • Example: Digital Option Pricing
  • Pricing a Range Accrual
  • Beyond the Volatility Surface and Black-Scholes 1
  • Beyond the Volatility Surface and Black-Scholes 2

Review

    • 1 Assignment
Show info about module content

1 Assignment

  • Graded quiz

Assignment

    • 1 Readings
    • 1 Assignment
Show info about module content

1 Assignment

  • Assignment 1

1 Readings

  • Introduction to Assignment

Assignment 2

    • 1 Assignment
Show info about module content

1 Assignment

  • Assignment 2

CDOs and the Gaussian Copula Model

    • 3 Videos
    • 1 Readings
    • 1 Assignment
Show info about module content

1 Assignment

  • W5.1 Self-Check Questions

3 Videos

  • Structured Credit: CDOs and Beyond
  • The Gaussian Copula Model
  • Computing the Portfolio Loss Distribution

1 Readings

  • Lesson Supplements

A Simple Example

    • 3 Videos
    • 2 Assignment
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2 Assignment

  • W5.2 Self-Check Questions
  • W5.3 Self-Check Questions

3 Videos

  • 1-Period CDO Model: Part I
  • 1-Period CDO Model: Part II
  • Observations from the 1-Period CDO Model

Understanding a CDO Tranche

    • 4 Videos
    • 1 Assignment
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1 Assignment

  • W5.4 Self-Check Quiz

4 Videos

  • The Mechanics of a “Synthetic” CDO Tranche
  • Fair Value of Premium & Default Leg
  • Fair Value of CDO Tranche
  • Cash and Synthetic CDOs

CDO Portfolios

    • 4 Videos
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4 Videos

  • Pricing and Risk Management of CDO Portfolios
  • Challenges in Risk Management of Structured Credit Portfolios
  • A Brief Aside on Copulas
  • CDO-Squared's and Beyond

Review

    • 1 Readings
    • 1 Assignment
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1 Assignment

  • Credit Derivatives and Structured Products

1 Readings

  • Quiz Instructions

Real Options

    • 1 Videos
    • 1 Readings
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1 Videos

  • Real Options

1 Readings

  • Lesson Supplements

Energy and Commodities Modeling

    • 3 Videos
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3 Videos

  • Valuation of Natural Gas and Electricity Related Options 1
  • Valuation of Natural Gas and Electricity Related Options 2
  • Real Options in Excel

Review

    • 1 Readings
    • 1 Assignment
Show info about module content

1 Assignment

  • Other Applications of Financial Engineering

1 Readings

  • Quiz Instructions

Auto Summary

"Advanced Topics in Derivative Pricing" is a professional-level course designed for individuals keen on mastering complex concepts in the field of Business & Management. Led by expert instructors from Coursera, this comprehensive program spans 960 hours and is available through a Starter subscription. The course is meticulously structured into four modules, beginning with an in-depth exploration of the Black-Scholes model to derive Greeks—key tools for assessing the sensitivity of option values to various market variables. These fundamentals are crucial for effective risk management and portfolio hedging. Building on this foundation, the second module delves into the relationship between theoretical and real market prices via implied volatility. Learners will gain insights into pricing through the volatility surface and understand phenomena like volatility smiles and skews. In the third module, the focus shifts to credit derivatives and structured products, particularly Credit Debit Obligations (CDOs). This segment provides a detailed examination of CDOs, including their definitions, variations, and their significant role in historical financial crises. The final module applies option pricing methodologies to real-world scenarios, using natural gas and electricity options as case studies. Through dynamic programming and other valuation methods, participants will learn practical approaches to real options. This course is ideal for professionals seeking advanced knowledge in derivative pricing, risk management, and financial modeling. Whether you're a seasoned finance expert or an ambitious learner aiming to deepen your expertise, this program offers valuable skills and insights to enhance your career in finance.

Garud Iyengar
Instructors

Garud Iyengar

Ali Hirsa
Instructors

Ali Hirsa

Martin Haugh
Instructors

Martin Haugh