A derivative product is a financial instrument whose value is determined completely by external variables. The external factor, or the underlying, could be anything but in general, is either a financial asset or an economic variable (such as interest rates).
Derivative instruments include forward and futures contracts, vanilla and exotic options, and swaps. These instruments may be priced or valued in a number of ways. Options, for example, may be valued using closed form solutions (like the Black-Scholes option pricing formula) or Monte Carlo Simulators or Binomial Trees.
What are the prerequisites?
Key concepts and terminology associated with Derivatives
As a first step in learning about Derivatives Pricing, we begin by familiarizing ourselves with the related terminology. The following courses will help you grasp and get comfortable with the key concepts behind the derivatives language.
- Derivatives Crash Course for Dummies
- Derivative Pricing, Risk Management, Financial Engineering – Equation Reference
- Derivative Products
- Advanced Derivatives Crash Course – Structured products, credit derivatives, exotics
What topics are covered?
Calculation tools for pricing derivatives
We start off by developing a better understanding of the Black Scholes equation before moving to pricing with Binomial trees and Monte Carlo Simulation. Pricing means determining the present value of the expected value of the instrument on the valuation date. For this purpose, therefore, we also review interest rate modeling. These topics are covered in the following courses:
- Understanding N(d1) & N(d2)
- Computational Finance: Building Monte Carlo (MC) Simulators in Excel
- Options pricing with Binomial trees in Excel spreadsheets
- Interest Rate Simulation Crash Course
Derivative instruments I will learn to price
We then move on to pricing specific derivative instruments:
- Pricing Interest Rate Swaps – The valuation and MTM course
- Interest Rate Options – Pricing Caps and Floors
- Pricing Ladder Options using a Monte Carlo simulator
Premium Content:
- Derivatives Terminology Crash Course
- Derivatives Pricing – Package
- Derivative Products
- Derivative Products – Package
- Derivative Pricing – Binomial Trees EXCEL Example
- Derivative Pricing – Binomial Trees – Efficient Approach
- Forward Prices, Forward Rates and Forward Rate Agreements (FRA) – EXCEL Example
- Forward Prices, Spot Rates & Forward Rates, Yield-to-Maturity, Forward Rate Agreements (FRA), Forward Contracts and Forward Exchange Rates
- Forward Prices and Forward Rates – Calculation reference & detailed examples
- Monte Carlo Simulation – Commodity – Example
- Monte Carlo Simulation – Currency – Example
- Monte Carlo Simulation – Equity – Example
- Monte Carlo Simulation – Package
- Monte Carlo Simulator with Historical Returns
- Pricing IRS – Module I – Term Structures
- Pricing IRS – Module I – Term Structures EXCEL Example
- Pricing IRS – Module II – IRS and CCS
- Pricing IRS – Module II – IRS and CCS EXCEL Example
- Pricing Interest Rate Options – Module III
- Pricing Interest Rate Options – Module III EXCEL Example
- Pricing Ladder Options using a Monte Carlo Simulator
- Pricing Interest Rate Swaps and Interest Rate Options – Package
- Valuing Options – Black Scholes Example
- Valuing Options – Binomial Tree – Traditional Approach – EXCEL Example