A derivative security is a financial instrument whose value depends upon the value of another (i.e., underlying) asset. Examples of derivatives include forwards, futures, options, and swaps. The market for derivatives is enormous. As of December 2018, there was $544 trillion in notional principal of over-the-counter derivatives. This course introduces students to the theory of and practical application of derivative securities. We will focus on institutional aspects of derivatives markets, no arbitrage pricing of derivatives by payoff replication, and ways to use derivatives to speculate and hedge financial risks. Futures, options, and swaps on different underlying assets will be covered. Emphasis will be on pricing and application.

A derivative security is a financial instrument whose value depends upon the value of another (i.e., underlying) asset. Examples of derivatives include forwards, futures, options, and swaps. The market for derivatives is enormous. As of December 2018, there was $544 trillion in notional principal of over-the-counter derivatives. This course introduces students to the theory of and practical application of derivative securities. We will focus on institutional aspects of derivatives markets, no arbitrage pricing of derivatives by payoff replication, and ways to use derivatives to speculate and hedge financial risks. Futures, options, and swaps on different underlying assets will be covered. Emphasis will be on pricing and application.