Subject
Finance
Program
Bachelor’s degree (BBA)
Location
Côte-des-Neiges
Instruction mode
Credits
3
Description
Introduction to the main derivative instruments and their use in finance. Mechanics, valuation, and hedging strategies involving forward and futures contracts, interest rate swaps, options, and credit derivatives. Emphasis is placed on arbitrage, risk management, and valuation principles.
The course develops students' ability to analyze the economic mechanisms underlying derivative instruments, determine their value using arbitrage and replication principles, and design strategies suited to different financial risks. Students also learn to interpret relationships between spot and forward markets, measure risk exposures, and assess the effectiveness of hedging strategies. Concepts are applied to practical financial situations through quantitative reasoning and valuation models.
Themes covered
Role characteristics and main uses of derivative instruments
Mechanics of exchange-traded and over-the-counter forward and futures markets
Daily settlement margin and delivery mechanisms for futures contracts
Management of price and market risk using derivatives
Basis risk cross-hedging and adjustment of portfolio exposure
Term structure of interest rates spot rates forward rates and risk-free rates
Arbitrage-based valuation of forward and futures contracts
Interest rate derivatives swaps and instruments used to hedge interest rate risk
Credit derivatives and measurement of default risk
Option characteristics strategies and arbitrage relationships
Option valuation using replication risk-neutral valuation binomial models and the Black-Scholes model
Option risk management using delta and gamma
Important notes
Course in French : FINA 20210
Prerequisite(s) : FINA 10200(A)