Financial Derivatives

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Paper Code: 312411	——–	Credits: 4	Class Hours: 120 hrs.
Paper Title:	Financial Derivatives

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Chapter-1 Introduction
Exchange-traded markets, over the counter markets, forward contracts, futures contracts, options, types of traders, hedgers, speculators, arbitrageurs, dangers.

Chapter-2 Mechanics of Futures Markets
Background, specification of a futures contract, convergence of futures price to spot price, daily settlement and margins, newspaper quotes, delivery, types of traders and types of orders, forward and futures contracts.

Chapter-3 Interest Rates
Types of rates, zero rates, bond pricing, determining treasury zero rates.

Chapter-4 Determination of Forward and Futures Prices
Investment assets vs. consumption assets, short selling, assumptions and notation, forward price for an investment asset, known income, known yield, valuing forward contracts, are forward prices and futures prices equal? Futures prices of stock indices, forward and futures contracts on currencies, futures on commodities, the cost of carry, delivery portions, futures prices and expected future spot prices.

Chapter-5 Swaps
Mechanics of interest rate swaps, the comparative-advantage argument, the nature of swap rates, determining the LIBOR/swap zero rates, valuation of interest rate swaps, currency swaps, valuation of currency swaps, credit risk.

Chapter-6 Mechanics of Options markets
Types of options, option positions, underlying assets, specification of stock options, margin.

Chapter-7 Properties of Stock Options
Factors affecting option prices, assumptions and notation, upper and lower bounds for option prices, put-call parity, early exercise: calls on non-dividend-paying stock, early exercise: puts on a non-dividend-paying stock, effect of dividends.

Chapter-8 Trading Strategies Involving Options
Strategies involving a single option and a stock, spreads, combinations, other payoffs.

Chapter-9 Binomial Trees
One-step binomial model, risk-neutral valuation, two-step binomial tree, A put example, American options, delta, matching volatility with u and d.

Chapter-10 The Black-Scholes-Merton model
Volatility, concepts underlying the Black-Scholes-Merton differential equation, derivation of the Black-Scholes-Merton differential equation, risk-neutral valuation, Black-Scholes pricing formulas, cumulative normal distribution function, warrants and executive stock options, implied volatilities, dividends.

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Chapter-1 Introduction
Exchange-traded markets, over the counter markets, forward contracts, futures contracts, options, types of traders, hedgers, speculators, arbitrageurs, dangers.

Chapter-2 Mechanics of Futures Markets
Background, specification of a futures contract, convergence of futures price to spot price, daily settlement and margins, newspaper quotes, delivery, types of traders and types of orders, forward and futures contracts.

Chapter-3 Interest Rates
Types of rates, zero rates, bond pricing, determining treasury zero rates.

Chapter-5 Swaps
Mechanics of interest rate swaps, the comparative-advantage argument, the nature of swap rates, determining the LIBOR/swap zero rates, valuation of interest rate swaps, currency swaps, valuation of currency swaps, credit risk.

Chapter-6 Mechanics of Options markets
Types of options, option positions, underlying assets, specification of stock options, margin.

Chapter-7 Properties of Stock Options
Factors affecting option prices, assumptions and notation, upper and lower bounds for option prices, put-call parity, early exercise: calls on non-dividend-paying stock, early exercise: puts on a non-dividend-paying stock, effect of dividends.

Chapter-8 Trading Strategies Involving Options
Strategies involving a single option and a stock, spreads, combinations, other payoffs.

Chapter-9 Binomial Trees
One-step binomial model, risk-neutral valuation, two-step binomial tree, A put example, American options, delta, matching volatility with u and d.

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About Course

Course Content

Support Groups

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Chapter-1 Introduction Exchange-traded markets, over the counter markets, forward contracts, futures contracts, options, types of traders, hedgers, speculators, arbitrageurs, dangers.

Chapter-2 Mechanics of Futures Markets Background, specification of a futures contract, convergence of futures price to spot price, daily settlement and margins, newspaper quotes, delivery, types of traders and types of orders, forward and futures contracts.

Chapter-3 Interest Rates Types of rates, zero rates, bond pricing, determining treasury zero rates.

Chapter-5 Swaps Mechanics of interest rate swaps, the comparative-advantage argument, the nature of swap rates, determining the LIBOR/swap zero rates, valuation of interest rate swaps, currency swaps, valuation of currency swaps, credit risk.

Chapter-6 Mechanics of Options markets Types of options, option positions, underlying assets, specification of stock options, margin.

Chapter-7 Properties of Stock Options Factors affecting option prices, assumptions and notation, upper and lower bounds for option prices, put-call parity, early exercise: calls on non-dividend-paying stock, early exercise: puts on a non-dividend-paying stock, effect of dividends.

Chapter-8 Trading Strategies Involving Options Strategies involving a single option and a stock, spreads, combinations, other payoffs.

Chapter-9 Binomial Trees One-step binomial model, risk-neutral valuation, two-step binomial tree, A put example, American options, delta, matching volatility with u and d.

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Chapter-1 Introduction
Exchange-traded markets, over the counter markets, forward contracts, futures contracts, options, types of traders, hedgers, speculators, arbitrageurs, dangers.

Chapter-2 Mechanics of Futures Markets
Background, specification of a futures contract, convergence of futures price to spot price, daily settlement and margins, newspaper quotes, delivery, types of traders and types of orders, forward and futures contracts.

Chapter-3 Interest Rates
Types of rates, zero rates, bond pricing, determining treasury zero rates.

Chapter-5 Swaps
Mechanics of interest rate swaps, the comparative-advantage argument, the nature of swap rates, determining the LIBOR/swap zero rates, valuation of interest rate swaps, currency swaps, valuation of currency swaps, credit risk.

Chapter-6 Mechanics of Options markets
Types of options, option positions, underlying assets, specification of stock options, margin.

Chapter-7 Properties of Stock Options
Factors affecting option prices, assumptions and notation, upper and lower bounds for option prices, put-call parity, early exercise: calls on non-dividend-paying stock, early exercise: puts on a non-dividend-paying stock, effect of dividends.

Chapter-8 Trading Strategies Involving Options
Strategies involving a single option and a stock, spreads, combinations, other payoffs.

Chapter-9 Binomial Trees
One-step binomial model, risk-neutral valuation, two-step binomial tree, A put example, American options, delta, matching volatility with u and d.