Course Objective: This course attempts to give an overview of the derivatives market with special reference to India. A financial manager must understand how derivatives can be used to the advantage of the firm. An introduction to Derivatives will equip the students to understand the mechanics of this highly intriguing & innovative field of study
Course Contents:
Module I: Introduction to financial derivatives Introduction to derivative trading, Characteristics of derivatives, Underlying assets (Equity Bonds/loans, Foreign Currency, and Commodity), Importance of derivatives as an investment option, introduction to types of derivatives, Participants in derivatives market (Hedgers, Speculators, Arbitrageurs). Evolution of Derivative markets in India.
Module II: Forwards & Futures Forward contracts: Limitations of forward markets, Differences between forwards and futures, Futures terminology, pricing of futures contract , Introduction to currency futures, Interest rate futures, Treasury bond futures, Eurodollar futures, commodity futures, Index futures & Stock Futures (Hedging, speculation and arbitrage).
Module IV: Principles of trading & Hedging with Options Option Valuation: The BS-Merton Model (Solving for BS model, assumption application and criticism), Trading strategies - Option trading using bull and bear spreads (payoff graphs)
Module V: Swaps Terminology:- LIBOR, MIBOR, Swap basis, Interest rate swaps, Determining LIBOR/MIBOR swap zero rates, Currency swaps: Various types of swaps & features, Introduction to Swaptions.
Module VI: Recent Developments New Derivative contracts including Credit Derivatives, Weather Derivatives, Energy Derivatives, etc. Role of derivatives in the economic meltdown of 2007 - 2008, Major Derivative mishaps in the world including The Barrings Bank disaster, The Sumitomo corporation scandal, the Swiss Bank scam
Text & References: Text: Hull, J ohn C, An introduction to futures and options markets, Second Edition Prentice Hall of India References: Gupta, S .L., ,Financial Derivatives Theory, Concepts and Problem 2005, Prentice - Hall, India This course attempts to give an overview of the derivatives market with special reference to India. A financial manager must understand how derivatives can be used to the advantage of the firm. An introduction to Derivatives will equip the students to understand the mechanics of this highly intriguing & innovative field of study