Risorse bibliografiche
Risorsa bibliografica obbligatoria
Risorsa bibliografica facoltativa
Scheda Riassuntiva
Anno Accademico 2015/2016
Scuola Scuola di Ingegneria Industriale e dell'Informazione
Insegnamento 095982 - FINANCIAL ENGINEERING
Docente Baviera Roberto
Cfu 10.00 Tipo insegnamento Monodisciplinare

Corso di Studi Codice Piano di Studio preventivamente approvato Da (compreso) A (escluso) Insegnamento

Programma dettagliato e risultati di apprendimento attesi

Course: Financial Engineering

Code: 095982



Main obiectives and contents

From theory to practice in finance. The course presents with a case-study approach some significant examples where a financial engineer could provide a relevant contribution:

1.  Credit Risk: single-name and multi-name products;

2.  Quantitative Risk Management (RM): from RM Measures to RM Techniques;

3.  Structured products: calibration, valuation and some hedging issues.



Description of main arguments

1. Basic derivatives’ concepts

Forward & option: Exchange-traded Markets vs OTC markets, Forward vs Futures. Forward Price: deduction via a no-arbitrage argument. European Option (Call/Put): decomposition in Intrinsic Value & Time Value; Put Call Parity. CRR & Black Model and examples. Monte-Carlo technique.

Main Greeks: Delta, Gamma, Vega e Theta. Volatility Smile.

Basic Interest Rate (IR) instruments: Fundamental Year-fractions in IR Derivatives. Depos, Forward Depos, FRA, STIR Futures, Interest Rate Swaps & Fwd Swap, Cap/Floor, Swaptions, “InterBank Floaters”.

IR bootstrap. Sensitivities: BPV, DV01 and duration. For a linear portfolio, sensitivity analysis and hedging of IR risk with IRS.


2. Credit Risk

Introduction to credit risk.

Basic FI instruments in presence of Credit Risk: Fixed Coupon Bond, Floater Coupon Bond, Asset Swap, CDS. SPOL, CDS, ASW relations. Bootstrap Credit Curve.

Firm-value (Merton, KMV calibration, Black-Cox) & Intensity Based Models (Jarrow & Turnbull, inhomogeneous Poisson).

Multiname products (ABS, MBS, CDO) and models for HP and LHP (Vasicek, O'Kane & Schloegl model, double t-Student, General Threshold Model).

Copula approach and Li model with examples (Archimedean and Gaussian Copulas), Implied Correlation in CDO trances.


3. Quantitative Risk Management

Basel I & II, Risk Management Policy.

VaR/ES: examples, Variance-Covariance method, Historical Simulation, Weighted Historical Simulation, Bootstrap, Full valuation Monte-Carlo, Delta-normal & Delta Gamma method, plausibility check, losses over Several Periods and Scaling rule. Coherent measures: assioms, VaR subadditivity (counterexample, elliptic case), ES coherence.

Backtest VaR: Base approach, unconditional backtest, conditional backtest.

Capital Allocation: Euler Principle & Contribution to VaR & ES.

Incremental Risk Charge.


4. Structured products main typologies with examples.

Certificates, Equity and IR Structured bond: the general Monte-Carlo approach for pricing not-callable structured products. Callable & Autocallable products.

Deal structuring and Issuer hedging.

Digital Risk: Slope impact & Black Correction in Autocallable products, FFT technique. Lewis formula for option pricing and analytic strip via an example: Exponential Levy model and characteristic function (NIG & VG). Global calibration and pricing via a Monte-Carlo (NIG). Sticky Strike & Sticky Delta. Parsimony and smile symmetry.

IR products and models: plain vanilla and exotics. HJM models: Main equation under Risk Neutral measure. Proposition: Equivalence with a ZC bond approach. Fundamental Lemmas and examples:

  o   Market models: forward measure and application in the general derivative premium case. LMM and caplet solution. Calibration: Flat Vol vs Spot Vol in Cap/Floor markets.

  o   Hull White model (Extended Vasicek): Cap/Floors solution, Bond Options & Swaptions exact solution. Calibration issues. Pricing: Trinomial Tree Construction.



Course Prerequisites

Arbitrage Pricing Theory

Forwards, Futures, Call/Put European and American Options

CRR and Tree pricing approach

Fixed Coupon Bonds, Floaters and their sensitivities (e.g. duration)

Stochastic Ito Calculus, Girsanov Theorem and change of measure

Integration rules in the complex plain

Proficiency in Matlab

Note Sulla Modalità di valutazione

Written and oral exam.

Risorsa bibliografica obbligatoriaA. J. McNeil, R. Frey & P. Embrects, Quantitative Risk Management: Concepts, Techniques and tools, Editore: Princeton University Press, Anno edizione: 2005, ISBN: 0691122555

Risk Management

Risorsa bibliografica obbligatoriaP.J. Schonbucher, Credit Derivatives Pricing Models, Editore: Wiley, Anno edizione: 2003, ISBN: 0470842911

Credit Risk

Risorsa bibliografica obbligatoriaJ. Hull, Options, futures and other derivatives, Editore: Pearson Prentice Hall, Anno edizione: 2009, ISBN: 0136015867

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