ECO427 Financial Markets

Aims and Objectives

The aim of this course is to introduce the financial system and markets as well as the widely used financial instruments and their pricing models. In addition, Risk Management concept is also covered.

At the end of the course, the students shall acquire basic knowledge about markets, and shall be able to price some of the widely used financial instruments, such as, SWAPS, options, Bonds, Stocks and their risks as well. In addition to this, students become familiar to fundamentals of Risk Management.

The content of the course includes (but not limited):

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• Introduction to Finance and Financial Markets
  • Why Finance?
  • Finance and Economics
  • Free Markets & Financial Markets
  • Market failures?
• Financial Risks and Risk Management
• Utility and Risk Premium
• Interest Rate Markets Download Hull’s Book Presentation-pdf
  • Time Value of Money, Annuity, Perpeuity
  • Interest Rates, Term Structure
  • Bonds and Bonds Valuation
  • Duration of Bonds
  • Interest Rate Futures and Forwards
  • Bonds Trading Strategies SKIPPED
• SWAPS and SWAP Valuation Download Hull’s Book Presentation-pdf
  • Interest Rate SWAPS
• Options Download Hull’s Book Presentation-pdf Chapter 9 and Chapter 10
  • Mechanics of Market
  • Option Strategies pdf
  • Binomial Model for Option Pricing Hull Chap
  • Black-Scholes Option Pricing Theory
• Fundamentals of Credit Risk
  • Credit Ratings and Rating Transition

References and Suggested Readings

• Hull, J.C., “Options, Futures and Other Derivatives”, Sixth Edition or newew, 2005+ , Prentice Hall.

• Mishkin, F. S., Eakins, S. G., “Financial Markets and Institutions”, (any edition newer than) Third Edition, 2000, Addison-Wesley