Advanced Tools for Derivatives Valuation
Learn how to use a variety of numerical techniques to price American options and exotic derivatives.
CPE Credits: 14
This course is a component of the Advanced Derivatives Professional Certificate.
Prerequisite knowledge:
- Familiarity with derivative instruments
- Basic knowledge of stochastic calculus, e.g. Ito's lemma
- Intermediate to advanced MS Excel skills
- Intermediate probability and statistics
- Basic calculus, including partial differentiation and integration
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Module 1: Exotic Options and Path Dependency
- Strong vs. weak path dependency
- Asian Options
- Barrier Options
- Exchange options
- Lookback options
Module 2: Overview of Numerical Methods
- Valuation techniques for path dependent options
- Monte Carlo basics
- Finite difference methods
- Numerical Integration
Module 3: Monte Carlo Methods for Derivatives Valuation
- Monte Carlo methods applied to discrete models
- Monte Carlo methods applied to continuous models
- Getting to the Greeks
- Techniques for accelerating convergence
- Pros and Cons of Monte Carlo techniques
Module 1: Finite Difference Methods: One Factor Models
- The fundamental PDE and boundary conditions
- Explicit finite difference methods
- Implicit finite difference methods
- Crank-Nicolson method
Module 2: Finite Difference Methods: Two Factor Models
- Explicit finite difference methods
- Alternating direction implicit method
- Hopscotch method