This course further develops the course Mathematical Techniques of Finance I, to cover the general principles, and current practice, in pricing and hedging derivative instruments. We first discuss hedging and spanning risk factors, and apply these concepts to option pricing with stochastic volatility and jumps, including the Heston Model. Related to this, we discuss the modeling of the price process as a Levy process, and associated Fourier Transform techniques. We then discuss
finite difference methods, and apply these to various instruments, including convertible bonds. Finally, we discuss Monte Carlo methods, and techniques to make this method computationally efficient, and applicable to American options. This course will make much use of computer implementations.
1. Mathematical Techniques of Finance I; and
2. Fixed Income Securities and Interest Rate Modelling
A real option is a right—not an obligation—to take an action on an underlying real asset. The action may involve, for example, abandoning, expanding, or contracting a project or even deferring the decision until a later time. Real options analysis (ROA) is a tool that helps to quantify the value of a real option. This course provides a synthesis of modern asset pricing and corporate finance via the framework of ROA. The course compares and contrasts ROA with the traditional tools of valuation. The benefits and limitations of ROA in terms of practical applications are also discussed.
Financial engineering is the process of constructing new instruments by using bonds and individual derivatives such as forwards, calls, puts, and common exotic options as basic building blocks. The
process involves designing, pricing and managing the instruments. In this course, we anatomize a few popular structured products. Some of them have been traded in the Chicago Board Options Exchange, and Hong Kong Exchanges and Clearing Limited. And others, such as equity-linked high yield notes and capital guarantee funds are sold by the commercial banks in Hong Kong. We then discuss how to price these products by studying the price of the embedded exotic options. We study the risk exposure of the retail investors and risk management for the commercial banks. We also discuss some topics on the market for volatility trading, recent development of option-pricing models and global financial crisis.
This course is structured around the most commonly discussed and applied issues in a typical merger and acquisition transaction. It aims to offer the students an opportunity to study the M&A process,
understand different ways of valuing a target firm, explore how valuation results imply for potential deal structures, and find the driving forces behind the winning M&A strategies. Meanwhile, it covers various aspects of the academic research on M&As. Topics covered include, but not limited to, overview of M&A, M&As in Asia, M&A winning strategies, M&A process, valuation, synergies, M&A mechanics and implications, M&A theory and empirical evidence, corporate governance, ownership restructuring and etc. Case examples from various industries and countries will be prominently discussed.
This course brings together the practical and theoretical knowledge taught in the other derivatives and risk management courses in the MFIN program to introduce some of the state-of-the-art option pricing models. The course dwells on the original insights of various authors for exotic option pricing and option pricing models with volatility smiles. In addition to the plain-vanilla European option model, the course discusses the continuous and discrete barrier, lookback, Asian, American, excursion option pricing models. It also discusses the jumps and stochastic volatility option pricing models, including the latest option pricing models under Levy processes. Although this course highlights the theoretical and technical motivation of the various models, its delivery requires some hands-on knowledge of MatLab programming. Students finishing this course will be conversant with the latest developments and technology in option pricing.
Mathematical Techniques of Finance I
Students, who successfully register in this course after the add/drop period, will be arranged a free license of Student Version of MatLab.