Financial markets and financial theory
V. Lozève - C. de Langhe
30 hours + exam, 11 weeks (This course takes place from October to December, 3 hours per week).
Part 1 - Introductory elements
1 - Macroeconomic aggregates and indicators (GDP, inflation…), economic policies, the era of fluctuations (since the 1970s) and the role of finance.
2 - Basic financial instruments (stocks, bonds, debt securities), company valuation and financial rating.
3 - The actors of the monetary and financial system: central banks, retail banks, corporate and investment banks, insurance companies, savings funds, hedge funds, sovereign wealth funds…
Part 2 - The general framework of derivatives
4 - The term structure of interest rates: interest rate futures and swaps, Euribor rate/swap rate, construction of a zero-coupon curve, interest rate sensitivities and duration.
5 - “Vanilla” options: call/put options on shares/exchange rates/stock indexes, caps/floors, swaptions, digital options. Basic valuation models (Black-Scholes, Bachelier). Notion of implied volatility. “Skew/smile of volatility and risk-neutral probability.
6 - Financial management of counterparty risk and credit default swaps (CDS). Highlighting the process of financial innovation.
7 - Complexity and innovation beyond derivatives: elements of securitisation; review of the subprime crisis in the United States.
Part 3 - The main families of complex derivatives and their use
8 - Complex equity and foreign exchange derivatives: barrier and autocallable products; multi-subordinated correlation products (“mountain range”), volatility products (“timer options”, “volatility targets”), etc.
9 - Complex interest rate derivatives: corridor/range accruals, spread options, Bermuda swaptions, etc.
10 - Structuring of financial packages based on option products. Study of a practical example of a “toxic” product (interest rate “snowball”) distributed to local authorities.