My learning journey in Foundations of Modern Finance II
My learning journey in Foundations of Modern Finance II has been an exciting and challenging experience. Throughout the course, I have learned a lot about different financial concepts and their applications in the real world. Here are some of the key things that I have learned:
In the first few weeks of the course, we delved into the topic of portfolio theory. I learned about the importance of diversification in reducing investment risk and maximizing returns. We discussed how to build efficient portfolios that balance risk and return, and how to measure portfolio performance using metrics such as the Sharpe ratio.
As the course progressed, we explored the intricacies of different financial markets, including bond markets, equity markets, and derivatives markets. I gained an understanding of the mechanics of these markets and the different investment strategies that can be used to capitalize on them. I also learned about the importance of market efficiency in determining prices and how to identify and exploit market inefficiencies.
One of the most challenging topics we covered was option pricing. We learned about different option strategies and how to calculate the fair value of options using the Black-Scholes model. This was a complex topic that required a lot of mathematical calculations, but I found it rewarding to apply the theory to real-world scenarios.
Throughout the course, we also engaged in various case studies and simulations that allowed us to apply our knowledge in practical situations. This was a great way to learn how to make informed financial decisions and to see the real-world impact of different investment strategies.
Week 1: Forwards and Futures
As a student in Foundations of Modern Finance II, the first week of class was both challenging and insightful. Here are the three main takeaways on Forwards and Futures:
- Forwards and futures are types of derivative contracts that allow investors to hedge against future price movements or speculate on price changes. Forwards are customized contracts between two parties, while futures are standardized contracts traded on exchanges.
- The price of a forward or futures contract is determined by the spot price of the underlying asset, the time to expiration, and the cost of carry.
- Forwards and futures can be used in a variety of ways, such as hedging against price movements, locking in prices for future transactions, or speculating on price changes.
I found some problems quite interesting:
Part 6
Consider the following swap contract, and compute the value of the fixed leg of the forward contract.
Week 2: Options Part I
The second week of class was both fascinating and challenging. Here are the three main takeaways from our discussion on Options Part I:
- Options are financial contracts that give the holder the right, but not the obligation, to buy or sell an underlying asset at a predetermined price (the strike price) on or before a specific date (the expiration date).
- The price of an option is determined by various factors, including the price of the underlying asset, the strike price, the time to expiration, the volatility of the underlying asset, and the risk-free interest rate.
- Options can be used for a variety of purposes, such as hedging against price movements, generating income, or speculating on price changes.
I found some problems quite interesting:
Part 4
Find the option prices for the following, market value of the described call option.
Week 3: Options II
I found our third week of studying Options II to be incredibly interesting. Here are the three main takeaways:
Options can be used for a variety of purposes, such as hedging against potential losses or speculating on future price movements. One popular strategy is the covered call, which involves selling call options on a stock that you already own in order to generate additional income.
The value of an option is influenced by several factors, including the price of the underlying asset, the strike price, the time until expiration, and market volatility.
There are several different pricing models that can be used to value options, including the Black-Scholes model and the binomial model.
I found some problems quite interesting:
Part 2
Consider a stock paying no dividends. Price movements follow the binomial model with the following tree
Overall, my learning journey in Foundations of Modern Finance II has been a valuable experience that has equipped me with the knowledge and skills needed to succeed in the world of finance. I am grateful for the opportunity to have learned from experienced professors and to have engaged with a diverse group of fellow students. I am excited to continue my journey in this field and to apply what I have learned to future challenges and opportunities.
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