Lal Bahadur Shastri Institute of Management, Delhi

Two Year Full Time Post Graduate Diploma in Management (Finan e!

Trimester " I#
Course Code$ %%&'%' Finan ial Deri(ati(es Academic Session$ %)'*"'& Varsney Course Title: Instructor: Dr. Pankaj

+ourse ,-.e ti(e$ Financial derivatives have become an indis ensable art in today!s "orld. The ur ose o# this course is to $ive an overvie" o# the #undamentals o# derivatives. This course introduces #inancial derivatives% such as #or"ards% #utures% s"a s% and o tions. A lication o# these derivatives instruments in mana$in$ risk mana$ement% besides their ricin$ & valuation issues "ould be e' lored. +ourse +ontents$ Modul Session Topi s 1 2eadings e /o0 /os0 ( ' Introdu tion to Deri(ati(es Se urities:
For"ard Contracts) Futures Contracts) * tions + *ther Derivatives , -eanin$ + Di##erences) Ty es o# traders) .ses o# Derivatives) /ole o# Derivatives) Criticism o# Derivative contracts) *vervie" o# Indian Derivatives market. Reading: 0ull + 1asu: Cha ter (

Me hani s of Futures Mar3et:

S eci#ications o# Futures Contracts) * eration o# -ar$ins) 3e"s a er 4uotes) Conver$ence o# Futures rice to S ot Price) Sa#e$uards in Futures -arket) Closin$ o# a Futures osition) * en Interest. Reading: 0ull + 1asu: Cha ter 2

567

Determination of Futures pri es:

Investment vs. Consum tion assets) Short sellin$) Cost6o#6 Carry -odel) Valuin$ Futures Contracts) Futures Price + the 8' ected #uture S ot Price. Reading: 0ull + 1asu: Cha ter 9

96:

4edging Strategies 5sing Futures:

1asic Princi les) 1asis /isk) Cross hed$in$) -inimum Variance 0ed$e /atio) Stock Inde' Futures) 0ed$in$ "ith Stock Inde' Futures) /ollin$ the hed$e #or"ard. Reading: 0ull + 1asu: Cha ter 5

Me hani s of ,ptions Mar3et:

Ty es) * tion Positions) .nderlyin$ assets) S eci#ications o# a Stock * tion) Commission + -ar$ins) Tradin$ + Clearin$ Cor oration. Reading: 0ull + 1asu: Cha ter <

<6=

Properties of Sto 3 ,ptions:

Factors a##ectin$ * tion rices) . er + >o"er 1ounds o# * tion rices) Put6Call arity) 8arly e'ercise o# o tions) /elationshi bet"een American Put 6 Call rices) 8##ect o# Dividends.

'

Reading: 0ull + 1asu: Cha ter = (?6(2

#aluing ,ptions:
1inomial -odel% one6ste % t"o ste binomial trees) /isk6neutral valuation) 1lack6Scholes * tions Pricin$ -odel @1S*P-A) Assum tions) >o$6normal ro erty o# stock rices) Inter retation o# the #ormula) Volatility) Im lied Volatility) Volatility smiles% 8##ect o# Dividends. Reading: 0ull + 1asu: Cha ter ((% (5

(56(7

Trading Strategies 5sing ,ptions:

Strate$ies involvin$ a sin$le o tion + a stock) S reads) Combinations) Synthetic Stock. Reading: 0ull + 1asu: Cha ter (?

(96(:

The Gree3s$
Delta% Theta% Bamma% Ve$a% and /ho 6 -eanin$% .ses and relationshi . Reading: 0ull + 1asu: Cha ter (;

&

(;6(<

Swaps:
Conce ts) Di##erent ty es o# Interest rate s"a s6Structure% Pricin$ and Valuation o# Interest rate s"a s) Currency s"a s6 Structure% Pricin$ and Valuation o# Currency s"a s. Reading: 0ull + 1asu: Cha ter ;

(=

+ommodit7 Deri(ati(es$
Products% artici ants% Di##erences bet"een Commodity and Financial Derivatives) Commodity Derivative 8'chan$es in India) Present Scenario in India.

2?

Lessons from Deri(ati(e Disasters$

-ain learnin$s #rom incidents o# losses sustain "hile usin$ derivative contracts such as 1arin$s 1ank% *ran$e County% Cidder Peabody etc. Reading: 0ull + 1asu: Cha ter 57

Pedagog7$
The teachin$ methodolo$y used in this course "ill be a judicious mi' o# lectures% case studies + discussions% as "ell as resentations by the students.

9(aluation$
Internal :ssessment: 9? marks% "hich "ill include -id6term e'amination @2?A) Class Partici ation @(?A) Assi$nments& 4uiDDes @1est threeA @2?A. 9nd Term 9;amination: 9? marks.

Suggested 2eadings$
<ohn +0 4ull 1 San3arshan Basu% Options, Futures, and Other Derivatives% ;th 8dition% Pearson 8ducation% 2?(?. 2o-ert =0 >ol- and <ames :0 ,(erdahl, Futures, Options & Swaps, 5th Edition, Eiley India% 2??=. Don M0 +han e and 2o-ert Broo3s, Derivatives and Risk Management Basics, Cen$a$e >earnin$% 2??<. Da(id :0 Du-ofs37, and Thomas =0 Miller, Derivatives *'#ord .niversity Press% 2??5. !a"uation & Risk Manage ment%