Dr Jean-Pierre Zigrand & Dr Rohit Rahi

This course covers the concepts and models underlying the modern analysis and pricing of financial derivatives. The philosophy of the course is to first provide firm foundations for understanding derivatives in general.

The required technical tools will be explained carefully, allowing students to learn the language and to be able to converse with derivatives professionals. Once the tools are in place, those same tools can then be applied to any derivative. Special emphasis will be put on those derivatives that shape the modern world.

The first half of the course involves the review of the required tools, the setup of the pricing framework, the intuition of the methodology and the application to plain vanilla derivatives.

The second half of the course applies those techniques to more advanced topics: exotic derivatives, volatility modelling (including stochastic volatility, local volatility and volatility derivatives such as variance swaps) and interest-rate derivatives.

The pricing and hedging tools come to life in applied case studies, ranging from rogue traders bringing down major financial institutions to the recent meme stock frenzy driven by social media.