- Docente: Silvia Romagnoli
- Credits: 6
- SSD: SECS-S/06
- Language: English
- Teaching Mode: In-person learning (entirely or partially)
- Campus: Bologna
- Corso: First cycle degree programme (L) in Economics and Finance (cod. 8835)
Learning outcomes
At the end of the course the student knows how to analyze a
financial transaction and to decompose it in order to give a right
valuation in light of the financial math principles. Particular
emphasis is placed on the issue of fixed income market and risk
imunization, stimulating students on discussions about the
feasibility of a particular hedging technique where both the
interest rate and the credit risk interact between them.
Course contents
- Basic principles of financial math: simple/commercial convention versus compound/istantaneous ones, the decomposability in the evaluation process.
- Fundamental tools: annuities, periodicity and constancy of the payments, payments variable as an arithmetical/geometrical progression, discrete versus continuous annuities, perpetuities.
- Simple and Complex financial transactions: fairness condition as pillar for the evaluation, sinking fund, amortization of a debt, reevaluation and indexation logic.
- Fixed income market: term structure of interest rates, zero coupon bonds and fixed/indexed coupon bonds (floater, reverse floater), swap contracts.
- Interest rate risk versus credit risk: credit derivatives.
- Immunization: classical principles of immunization for parallel
shift of the interest curve, Fong-Vasicek theorem to manage not
parallel shift scenarios, determistic versus stochastic
approach.
Readings/Bibliography
- Romagnoli S., Mathematical Finance, 2015, Esculapio
Teaching methods
Theoretical lessons will be support by applied examples of discussed models in order to incite students to find themselves the explicit solutions of the theoretical problems applying the correct mathematical instruments.
Assessment methods
The learning test consists in a written exam to solve in 2 hours. This exam is composed by 3 execises which are structured into 2 questions. During the exam it is permitted to use the calculator but it is not allowed to consult books or notes. It is attributed on average 10 points to each exercise. The students pass the exam with a score not lower than 18 points.
The students can ask also for an oral exam about all the programme of the course. The final grade will be the average of the oral and the witten exam's grade.
Office hours
See the website of Silvia Romagnoli