The following sections will be presented:

• Futures and Forward Contracts: Terminology – Payoffs – Standardization – Operation of Margins – Pricing – Arbitrage – Hedging
• Options Markets: Call and Put Option – Basic Positions – Payoffs and P/L Diagrams – Specification – Trading – Commissions – Margins – Warrants – Executive Stock Options – Convertible Bonds
• Properties of Stock Options: Basic Assumptions – Factors Affecting Option Prices – Arbitrage Bounds – Put-Call Parity – Early Exercise of American Options – The Effect of Dividends
• Trading Strategies Involving Options: Strategies Involving an Option and a Stock – Interpretation of Put-Call Parity – Bull Spread – Bear Spread – Butterfly Spread – Straddle – Strangle
• Binomial Model: One-Step Binomial Trees – Two-Step Binomial Trees – Pricing by Risk Free Portfolios – Risk Neutral Valuation – Pricing European Options – Pricing American Options – Delta Hedging
• Stochastic Processes and Itô’s Lemma: Types of Stochastic Processes – Markov Property – Weak-Form Market Efficiency – Continuous Time Stochastic Processes – Wiener Processes – Generalized Wiener Processes – Itô Processes – The Process for Stock Prices and Interpretation of Parameters – Itô’s Lemma and Applications
• Black & Scholes Model: Lognormal Property of Stock Prices – Distribution of Rate of Return – Historical Volatility – Black, Scholes & Merton PDE – Risk Neutral Valuation – Black & Scholes Pricing Formulas – Implied Volatility – Dividends Effect

The Greek Letters: Covered and Naked Positions – A Stop-Loss Strategy – Delta – Delta Hedging – Theta – Gamma – Relationship Among Delta, Theta and Gamma – Vega – Delta, Gamma and Vega Neutral Portfolios – Rho