Financial Derivatives (Functional Electives Finance)

Paper Code: 
MBF-521
Credits: 
4.0
Contact Hours: 
40.00
Max. Marks: 
100.00
Objective: 
  • 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.
  • To be able to use these instruments to address a wide range of trading and investment objectives.
  • To understand and be able to control the risks of financial derivatives and derivatives portfolios.
4.00
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.

8.00
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.

10.00
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.

10.00
Unit IV: 
Trading Strategies involving Futures, Options and Swaps

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

8.00
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 and Sankarshan Basu, Options, Futures and Other Derivatives, Seventh Edition, Pearson Education.2010
  • S. Kevin : Commodity and Financial Derivatives, EEE, PHI 2012.
  • SSS Kumar, Financial Derivatives, EEE PHI,2010
  • S. L Gupta, Financial Derivatives Theory, Concepts and Problems, EEE PHI.2010
  • Rajiv Srivastava, Derivatives and Risk Management, Oxford Higher Education,2011. 
  • Robert W. Kolb, Futures, Options, and Swaps, 3rd edition, Blackwell Publishers, 2008.
References: 
  1. Robert A. Jarrow, and Stuart M. Turnbull, Derivative Securities, 2nd edition, South-Western College Publishing, 2007.
  2. Economics Times,
  3. Financial Times,
  4.  NSE Report, and
  5. Derivatives Exchange reports.