To equip students with principles and techniques of financial derivatives, its trading and strategic application. It also discusses the Complex Derivatives like Greeks & Exotic Options, Financial Swaps etc.
At the end of the course, students should be able to:
Unit I (2 weeks)
Introduction: History of derivatives, origin of derivatives in India, the classification of derivatives, the important features of derivatives. Early delivery, extension & cancellation of forward contracts. Basis risk, why hedge. Currency futures and its hedging strategies. Derivatives trading in India.
Chapter 1 (Section 1.6)– [S.L Gupta]
Chapter 5 (Section 5.1-5.4)– [S.L Gupta]
https://www.fedai.org.in/; P.G. Apte
Chapter 3 (Section 3.1-3.3) – [J.C Hull]
Chapter 5 (Section 5.10) – [J.C Hull]
Unit II (2 weeks)
Options and its type, Factors affecting option Prices, upper bounds, lower bounds, early exercise, put & call parity, put & call parity (dividend effect). Trading strategies involving options: Spreads, combinations, payoffs; binomial model: One Period, Two Period and multiple Period. Black- Scholes option model. Naked & covered position, options given by financial institutions, Stop loss strategy portfolio insurance
Chapter 10 (Section 10.1, 10.3) – [J.C Hull]
Chapter 11 (Section 11.1-11.4) – [J.C Hull]
Chapter 12, (Chapter 12.1-12.5) – [J.C Hull]
Chapter 13, (Chapter 13.1, 13.3-13.8) – [J.C Hull]
Chapter 15, (Chapter 15.1 – 15.9) – [J.C Hull]
Unit III (3 weeks)
The Greek Letters: A Stop Loss strategy; Delta Hedging, Delta of European Stock Options; Delta of a portfolio; Theta of a portfolio; Gamma: Making a portfolio Gamma Neutral.
Chapter 17 of J.C Hull
Unit IV (2 weeks)
Understanding of Interest rate swap, currency swaps & cross currency swaps. Understanding and types of Exotic Options. Credit Derivatives: Credit ratings, Default intensities, Recovery rates, estimating default probabilities from bond prices; Credit Default Swaps (CDS).
Chapter 7, 24 and 28 of J.C Hull