FINANCIAL DERIVATIVES

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

Course Outcomes

Learning and teaching strategies

Assessment Strategies

 
 

CO 175: Describe and explain the fundamental features of a range of key financial derivative instruments

CO 176: Acquire knowledge of pricing of  forward contracts, futures contracts, swaps and options .

CO 177: Understand the usage of derivative instruments to address a wide range of trading and investment objectives.

CO 178: Examine the different methods to control the risks of financial derivatives and derivatives portfolios.

CO 179: Create awareness about various trading Strategies involving Futures, Options and Swaps.

CO180:To understand the various concepts of pricing options.

Approach in teaching:

Interactive Lectures, Group Discussions, Tutorials, Case Studies

 

 

Learning activities for the students:

Self-learning assignments, Virtual Trading Activities, presentations

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

 
 

 

12.00
Unit I: 
Unit-1

Brief history and background of derivatives

Evolution of Commodity, Currency, Stocks and Interest Rate Derivatives. Structure of derivative markets- Exchange traded market sand 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: 
Unit-II

Mechanics of Derivatives market (Futures & Options)

Futures: Contract specification of Futures, Convergence of Futures Price to spot price,  Exchange clearing, Settlement and margins system,  newspaper quotes, types of orders, Regulations.

Options: Types of Options, Option Positions, Underlying Assets, Specification of Stock Options, Trading, Margins, Clearing & Settlement.

Reasons for trading: risk management, speculation and arbitrage. Taxation- Corporate & Non Corporate Tax Payer

12.00
Unit III: 
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,  Cost of Carry Model, relationship between futures and spot price.

12.00
Unit IV: 
Unit-IV

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.

Conceptual Knowledge of  Implied Volatility and Volatility Index of India (VIX)

12.00
Unit V: 
Unit-V

Trading Strategies involving Options

Hedging strategies using futures, basic option trading strategies, - Long Call, Long Put, Covered and Uncovered Call & Put writing, Spreads, Currency and interest rate swaps.

*Case studies related to entire topics are to be taught

Essential Readings: 
  • John C Hull & Shankarshan Basu, Options, Futures & Derivatives, 10th Edition, Pearson Education 2018.

 

References: 

Suggested Readings:

  • S Keving, Commodity and Financial Derivatives, Second Edition, PHI Learning Pvt. Limited, 2014
  • Sundaram, Derivatives Principles and Practice, First Indian Edition , TATA Mc Graw Hill, 2017
  • Alfred Steinherr, Derivatives The Wild Beast of Finance: A Path to Effective Globalisation 1st edition, Wiley Publications, 2010

E Resources:

 

Journals:

 

Academic Year: 
2022-2023
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