Financial Derivatives

Paper Code: 
MFM 425
Credits: 
4
Contact Hours: 
60.00
Max. Marks: 
100.00
Objective: 

Course Objectives-

  1. To enable students to have a detailed understanding of the special characteristics of derivatives including forwards, futures, swaps, options and others, and their relationship to the underlying cash securities.
  2. To be able to use these instruments to address a wide range of trading and investment objectives.
  3. To understand and be able to control the risks of financial derivatives and derivatives portfolios.

Course Outcomes (COs):

Learning outcomes

(at course level)

Learning and teaching strategies

Assessment

Strategies

  
 

CO 151: To enable students to have a detailed understanding of the special characteristics of derivatives including forwards, futures, swaps, options and others, and their relationship to the underlying cash securities.

CO 152: To help the students to use these instruments to address a wide range of trading and investment objectives.

CO 153: To understand and be able to control the risks of financial derivatives and derivatives portfolios.

CO 154: to make the students aware about various trading Strategies involving Futures, Options and Swaps.

CO 155: To understand the various concepts of pricing options.

 

Approach in teaching:

Interactive Lectures, Group Discussion, Tutorials, Case Study

 

Learning activities for the students:

Self-learning assignments, presentations

Class test, Semester end examinations, Quiz, Assignments, Presentation

  

 

 

12.00
Unit I: 
Brief history and background of derivatives

Evolution of Commodity, Currency, Stocks and Interest Rate Derivatives. Structure of derivative markets- Exchange traded markets and Over the counter markets, forwards, futures, options, swaps and other derivative contracts. Types of traders: Hedgers, Speculators and Arbitragers. Overview of Indian Derivatives Market. 

12.00
Unit II: 
Mechanics of Derivatives market

Contract specification, Exchange clearing, Settlement and margins system, Types of traders and types of orders, Regulation, reasons for trading: risk management, speculation and arbitrage.

12.00
Unit III: 
Pricing Derivatives

Investment assets v/s consumption assets, short selling, cost of carry model, Forward price of an investment asset, valuing forward contracts, Futures price of stock indices, currencies, commodities, interest rate futures, relationship between futures and spot price.

12.00
Unit IV: 
Trading Strategies involving Futures, Options and Swaps

Hedging strategies using futures, basic option trading strategies, Currency and interest rate swaps.

12.00
Unit V: 
Option Pricing

Factors affecting option prices, intrinsic value and time value of options, put call parity, Pricing options: Black and Scholes model, binomial option pricing-one step

Essential Readings: 

• 

  • John C. Hull Options, Futures and Other Derivatives, Eighth Edition, Pearson Education, 2011.
  • S. Kevin, Commodity and Financial Derivatives, Second Edition, PHI Learning Pvt. Ltd., 2014.
  • SSS Kumar, Financial Derivatives, PHI Learning, 1st Edition, 2010.
  • S. L Gupta, Financial Derivatives Theory, Concepts and Problems, Second Edition, PHI.2017
  • Rajiv Srivastava, Derivatives and Risk Management, Second Edition, Oxford University Press, 2014. 
  • Robert W. Kolb, Futures, Options, and Swaps, 3rd edition, Blackwell Publishers, 200.
References: 

• Alfred Steinherr, Derivatives The Wild Beast of Finance: A Path to Effective Globaisation (Wiley Investment Series), 2000.
• Economics Times
• Financial Times
• NSE Report
• Derivatives Exchange reports

Academic Year: 
2020-2021
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