FINANCIAL DERIVATIVES

Paper Code: 
MFM 427
Credits: 
4
Contact Hours: 
60.00
Max. Marks: 
100.00
Objective: 

Course Outcomes

Learning and teaching strategies

Assessment Strategies

CO    1:          Describe        and  explain        the

Approach in teaching:

Interactive Lectures, Group Discussions, Tutorials, Case Studies

 

Learning activities for the students:

Self-learning assignments, Virtual Trading Activities, presentations

Class test,

fundamental features of a range of key

Semester end

financial derivative instruments

examinations,

CO 2: Acquire knowledge of pricing of forward contracts, futures contracts, swaps and options.

CO 3: Understand the usage of derivative

Quiz, Assignments, Presentation

instruments to address a wide range of

 

trading and investment objectives.

 

CO 4: Examine the different methods to

 

control the risks of financial derivatives

 

and derivatives portfolios.

 

CO 5: Create awareness about various

 

trading             Strategies             involving           Futures,

 

Options and Swaps.

 

CO  6:   To   understand   the   various

 

concepts of pricing options.

 

 

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 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: 

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: 

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: 

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: 
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: 

Essential Readings:

  • 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

 

References: 
E Resources:

 

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

 

Academic Year: 
2023-2024
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