FINANCIAL DERIVATIVES

Course Objectives

On completion of the course, the learner should be able to

  • Explain the basic types of derivatives, their pay off functions and the economic roles they play in managing risks
  • Describe the distinctive features of the existing financial derivatives
  • Compare the pay–offs of the derivatives and optimize investment decisions in derivatives
  • Demonstrate a sound knowledge of the structure and operations of derivative markets.

UNIT I Introduction to derivatives

Introduction to derivatives – types – necessity for derivatives – valuation basics – discounting and compounding – Time value – continuous compounding – significance

UNIT II Forward and Futures

Forward contract and Futures Contract – Forwards – futures – Pricing of Futures and Forwards – options pricing strategy – commodity derivatives – currency futures and Interest Rate futures – Index futures – pricing

UNIT III Options

Types of Options – Differentiate European & American options – Call option and put Option – option pricing models – Binomial Model – Black and Scholes – Volatility

UNIT IV Swaps

Swaps – Equity – Currency – Interest Rate– Types – Structure – Pricing – Financial Derivatives in Indian Financial Markets

UNIT V Other Derivatives

Risk Management Using Derivatives – Exotic Derivatives – Weather Derivatives – Credit Derivatives – Real Derivatives – Scenario Analysis and Simulation – developments and trends in the area of derivatives trading.

Learning Resources

  • Hull, John C, Options, Options, futures and other derivatives, Prentice Hall of India,10th edition, 2016
  • Ranganatham and Madhumathi, Derivatives and Risk Management, Pearson, 2017
  • Kevin, S, Commodity and Financial Derivatives, PHI, 2016.
  • Rajiv Srivastav, Derivatives and Risk Management, Oxford University Press, 2015

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