IEORE4722 Modeling and Market Making in Foreign Exchange (1.5)

Instructor: Mark Higgins

Additional Information: IEOR_E4722_Summer_2016_Syllabus.pdf

Class Outline: Modeling and Market Making in Foreign Exchange

Class 1: Spot markets
• Structure of the spot market
• Voice trading
• Electronic market making
• Electronic hedging
Class 2: Forward markets
• Structure of the forward market
• Relationship to interest rate markets
• Spot/forward arbitrage and risk management
• Exchange-traded futures
• Voice trading
• Electronic market making
• Emerging markets and forwards
Class 3: Vanilla option markets (part I)
• Structure of the option market
• Volatility interpolation and event risk
• Vega risk and dimensionality reduction
• How vega risk affects the definition of delta
Class 4: Vanilla option markets (part II)
• Managing cross vega in terms of correlation
• Relative value analyses for volatility
• Voice trading
• Electronic market making
• Exchange-traded futures options
Class 5: Exotic derivative markets (part I)
• Stochastic volatility models
• Local volatility models
• Local volatility/stochastic volatility mixture models
• Jump diffusion models

Class 6: Exotic derivative markets (part II)
• Barrier products and mixture models
• Cross-asset products and copulas
• Volatility products and volatility risk premium
• Index products and unhedgeable risk
Class 7: Algorithmic index markets
• Beta indexes
• Carry indexes
• Volatility indexes

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