Carnegie Mellon University

MSCF Options

Course Number: 46973

Concentration: Finance
Semester(s): Fall, Mini 2
Required/Elective: Required
Prerequisite(s): 46956, 46972

The goal of the Options course is to develop tools to price and hedge and understand the risk exposures of any contingent claim on any underlying variable. In addition, important empirical facts about option pricing are also reviewed. The types of options considered include exchange-traded calls and puts, OTC exotic options, interest rate options, volatility derivatives, corporate securities such as callable bonds and warrants, and "real options" like power plants and mines. The option pricing techniques to be studied include Black-Scholes, local vol and stochastic volatility models, Hull and White interest rates, binomial option pricing, and the option pricing super-theory known as Risk Neutral Valuation. Some specific topics are Geometric Brownian Motion and the mathematics of continuous-time stochastic processes; put-call parity and other arbitrage-free price option restrictions; Greeks; Monte Carlo Simulation; implied standard deviations and their statistical properties; heteroscedasticity, exotic options; interest rate and commodity options, static and dynamic option replication trading strategies; and implied stochastic processes.