[ZSimon]

Are you tired of not understanding explanations of the credit crisis?

Does the thought of "why did I lose money on my last simulator options trade" keep you awake at night?

Do you wonder why banks and financial institutes act in such a capitalist manner?


The answer to these questions and more is contained within this course. The course is taught by former investment banker and risk hedging algorithm writer, Narat Charupat. He uses the 8e+ editions of Options Futures and Other Derivatives by Hull, and his experience, to really drive home a full course which will leave you asking him for further course recommendations.

The course has two assignments, one test, and one exam.

These items being covered, the course isn't "easy". You need to think about everything. If you are entering positions, you need to exactly say what they are, whether you are short or long, and why you are entering it. When you loan an asset with a yield, you have to subtract the inflation from your yield (ie. hedge out the inflation).

The class size didn't drop all that much through the term. So its not that bad.

His assignments are not just questions. They will essentially send you on hunts about really important financial topics. Though some questions are easier and ensure that you get the basics right. Really good course that changed the way I thought about derivatives markets, hedging, and credit markets.

This course raised me.

The rest of this review covers course structure and some of the topics covered.

The course opens with discussions on what derivatives are: A contract and or agreement whose value comes from the underlying asset. It talks about careers in financial engineering, and the size of the derivatives market (huge).

It begins by explaining fundamentals:
how do banks lend or borrow?
why is it that banks can essentially borrow and lend at the risk free rate while consumers pay a (considerable) spread on that?
why should we use continuous compounding with e^-rt instead of (1+r)^t?
why are assets such as houses, gold, energy, and crude given special treatments or are hard to price accurately?
how do we price these?

it then introduces you to futures contracts, delivery, fundamentals, markets, margin accounts, the terminology etc.

In this discussion you learn, in extreme detail, what a call, and put option is. You then learn what a long and short position is (you should understand shorting and the costs associated very well).

You will then learn to use the options writer's perspective (or the banks perspective) to look at option values and payoffs.

From your discussions on borrowing and derivatives on interest rates, you will learn about Forward Rate Agreements (very very important). You will learn the fundamentals of LIBOR markets too.

After this the course goes into pricing (binomial pricing, geometric brownian motion (simplified), stochaistic, then black scholes).

the prof will then take a moment to explain random walks to you and why past prices aren't indicative of future prices. you should read the book A Random Walk Down Wall Street. In the same discussion he will tell you why a stock's current price is already reflective of what is to come either on the upside, or down side (risk and returns). Here there will also be an important and high level discussion on the idea of "what if you could exercise an european early?"

During the same part you'll learn about the ever so important greek letters for hedging: Delta, Vega, Theta, Gamma, etc. This is also very important.

The prof ends off by talking about exotic options: down and out, bermudan options, asian options, etc.

He then moves to a brief discussion about swaps. It is a really good discussion and he explains how they work very well. He also explains very precisely how swap market makers profit and how to make swaps equally fair to both parties. He is better than khanacademy on youtube.