Coming soon
FINANCIAL DERIVATIVES
This course will enable students to develop comprehensive understanding of derivatives markets, including historical evolution, market structures, mechanics, pricing models, trading strategies, and their applications in risk management and speculation.
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Course |
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Learning and teaching strategies |
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Course Code |
Course title |
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24MFM 427 |
Financial Derivatives (Theory) |
CO719: Analyze the historical development and evolution of derivatives across commodity, currency, stock, and interest rate markets. CO720: Evaluate the structure and functioning of derivative markets CO721: Demonstrate proficiency in the mechanics of derivative markets. CO722: Critically assess the pricing methodologies of derivatives, comparing and contrasting various investment assets. CO723: Formulate and implement trading strategies involving options, Futures, Forwards and SWAPS CO724: Contribute effectively in course-specific interaction
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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 |
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.
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
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.
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)
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.
John C Hull & Shankarshan Basu, Options, Futures & Derivatives, 10th Edition, Pearson Education 2018.
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:
· https://economictimes.indiatimes.com/topic/derivatives-market
· https://www.livemint.com/topic/derivative
Journals:
Journal of Finance, Impact Factor: 7.544 (2020), Editor: Anat Admati, ISSN: 0022-1082, (print); 1540-6261 (web), History: 1946-present, Publisher: Wiley-Blackwell for the American Finance Association, Disciplines: Finance, Economics, Business
