30 June 2023
Financial Derivatives and Real Options
This course provides you with an overview of derivative markets, introduces you to valuation techniques, and shows you on how to apply the knowledge to investment decisions in companies.
The course will be taught in two blocks of 2.5 days each. The first block introduces you to financial derivatives, namely forwards, futures, options, and swaps. You will learn the basic characteristic of these contracts, how they are set up in real capital markets, and how to derive pricing relations. At the end of each section, you will apply your knowledge using cases. In the second part of the course you will learn how to apply your knowledge on derivatives when making investment decisions. Investment decisions are inherently more complex than usually presented in an introductory finance course. In particular, managers have the option to wait, expand, or abandon the project. These possibilities give investments an option like character and you will learn how your knowledge of derivatives improves the decision-making process. You will apply the material in a business case.
Paulo Rodrigues & Stefanie Kleimeier
This course is designed and aimed at 2nd or 3rd year bachelor students without any prior knowledge about real options and without any in depth knowledge about option pricing.
After completing this course students should
• Understand the basic properties of the most important derivative instruments
• Know what is arbitrage
• Understand the basic concepts of replication
• Understand how to derive valuation bounds
• Understand how to apply the knowledge in a market environment
• Understand the importance of choices and uncertainty in corporate decision making
• Understand how real option models differ conceptually from classical capital budgeting
• Understand the advantages but also the challenges of using a real option framework
• Visualize an investment decision as a real option
• Have an intuitive understanding of option pricing based on the option value space spanned by the value-to-cost metric and the volatility metric
• Use this option value space to visualize strategic decisions
• Calculate and compare classical NPV and real option values for simple corporate investments
EUR 599: €599 Tuition fee per programme
No scholarships are available for this course.