Teaching - Università degli Studi della Tuscia

ECONOMIA DEL MERCATO MOBILIARE (objectives)

Active course attendance and study allow the student to
- know the institutional characteristics of the domestic and international stock market (knowledge and understanding);
- be able to understand the basic concepts of return and risk in the context of mean-variance models (knowledge and understanding);
- be able to calculate the different measures of risk and return in a portfolio context (applying knowledge and understanding);
- be able to understand the purpose and functioning of Markowitz models and CAPM (knowledge and understanding);
- be able to calculate and interpret various performance measures (applying knowledge and understanding);
- be able to understand the definition and use of call and put options and their combinations (applying knowledge and understanding);
- be able to estimate the price of plain vanilla options using the Black Scholes model, the binomial model, and Monte Carlo simulation (applying knowledge and understanding);
- be able to estimate the greeks of options, and to use them for hedging purposes (applying knowledge and understanding); - be able to describe the different approaches to hedging of options (applying knowledge and understanding);
- be able to describe the different approaches used professionally for the management of an equity portfolio (knowledge and understanding);
- know the most up-to-date topics on innovative products from academic and professional publications and sites (learning skills).
Students are provided with exercises and are assigned a project work that allows them to develop the ability to search for data and information to be processed, to elaborate advanced quantitative models and to arrive at conclusions regarding the risk return assessment of financial products (making judgments); to work in a team and to organize and manage a project (learning skills) and communication with the teacher; the ability to communicate results, revealing critical points and analyzing outputs using autonomy of judgment (communication skills), managing Excel and any programming languages (communication skills).

Code

13755

Language

ITA

Type of certificate

Profit certificate

Credits

Scientific Disciplinary Sector Code

SECS-P/11

Contact Hours

Type of Activity

Related or supplementary learning activities

Teacher	D'ARCANGELIS Anna Maria (syllabus) PART ONE. THE STOCK MARKET. RISK RETURN ANALYSIS. Estimation of returns. The risk and the distribution of the returns. The Normal distribution. The historical analysis of Bodie Kane and Marcus. The selection of financial assets in a return/risk context. MARKOWITZ ANALYSIS. Portfolio analysis. The portfolio return. The portfolio risk. The Markowitz model and risk diversification. The case of two securities with perfect positive correlation. The case of two securities with perfect negative correlation. The case of two securities with zero correlation. The Markowitz frontier: demonstrations. The case of perfect positive correlation, perfect negative correlation, null correlation. Analysis of the Markowitz frontier and selection of the portfolio. The selection of the optimal portfolio. The indifference curves approach. The shortfall probability approach. The methodologies of risk diversification. The Markowitz model: strengths and limitations. EQUILIBRIUM MODELS IN THE CAPITAL MARKET. From Tobin's model to the CAPM - The CML. The decomposition of risk into systematic and specific. The Sharpe Single Index Model. The estimation of the beta coefficient. The statistical reliability of the beta estimate. How to interpret the beta value. The risk in the single index model. Beta estimation methodologies. The Security Market Line (SML). CML and SML in comparison. The empirical tests of the CAPM. The valuation through the multiples. The price/earning ratio. The price/book value ratio. The dividend yield and the approach of the "Dogs of the Dow". The cash flow model. The theory of the efficient markets of Fama. The weak efficiency tests. Tests of semi-strong efficiency. SECOND PART. THE OPTIONS ON STOCKS. PLAIN VANILLA OPTIONS. Plain vanilla options. Definitions. The opening of long and short positions in options. Long call. Short call. Long put. Short put. The Building Block or Lego Approach. The value of the option: intrinsic value and time value. The intrinsic value and the moneyness of the option. The factors that determine the time value. The American-style option and early exercise. Put-call parity. Put-call parity for European style options. Put-call parity for American-style options. THE BLACK SCHOLES MODEL. Introduction. The dynamics of the share prices. The partial differential equation of Black Scholes. The formula of Black and Scholes. The formula of Black and Scholes in presence of dividends. Estimation of volatility. Historical volatility. Implied volatility. The volatility smile. THE BINOMIAL MODEL OF COX ROSS AND RUBINSTEIN. The binomial model. The one step model. The hypotheses to the base of the model. A numerical example. The binomial model to n steps. The binomial model and the valuation of the American options. The case of the American call. The case of the American put. THE MONTE CARLO SIMULATION. Introduction. The model. Definition of the number of run of the simulation. An example. The generation of numbers random. The method of the inverse transformation. Generation of the uniform random variables. Estimate of the inverse of the normal standard of. each uniform random variable. GREEKS AND DELTA HEDGING. Greeks. The delta. The gamma. The vega. The rho. The theta. Use of the Greeks: a summary example. The Greeks of an options portfolio. Options book hedging. Dynamic delta hedging. The delta-gamma hedging. Delta-Vega hedging. The delta-gamma-Vega hedging. Higher order Greeks. The vanna. The volga or vomma (or gamma-vega or volgamma). The delta bleed (charm). (reference books) Anna Maria D'Arcangelis. Economia del Mercato Mobiliare. Copinfax. Anna Maria D'Arcangelis. Finance with Excel. Teaching notes. 2015 Slides and course materials distributed by the instructor and available at university copy shops. Bodie, Kane and Marcus, (BKM), Essentials of Investments, 9th edition, Irwin, 2013.
Dates of beginning and end of teaching activities	From 01/10/2018 to 21/12/2018
Delivery mode	Traditional
Attendance	not mandatory
Evaluation methods	Written test Oral exam A project evaluation