Course Outline Derivatives and Risk Management 2015
Content
MBA-2 (2015-2016)
JGBS
Fall Semester
Derivatives and Risk Management
Credit
1.
5
Faculty
Course Title:
Dr. Brajesh Kumar
Sessions
18
Classroom-Based
Derivatives and Risk Management
Course Number:
Course Duration:
One Semester
No. of Credit Units:
1.5
Level:
Second Year (Core Elective-Finance) (MBA)
Hours of Teaching:
22.5 hrs
Medium of Instruction:
English
Pre-requisites:
None
1
MBA-2 (2015-2016)
JGBS
Fall Semester
Derivatives and Risk Management
Credit
1.
5
Faculty
Dr. Brajesh Kumar
Sessions
18
Classroom-Based
COURSE OVERVIEW
The main objective of the course is to introduce students the concepts of derivatives products such as
futures, options, swaps, role of derivatives markets, pricing of derivatives, hedging and investment
strategies etc. As it is a first course in the derivatives, emphasis is given to understand the basics of
derivatives products and functioning of markets rather than modeling (hedging, price discovery,
pricing) and analyzing (mathematically) the functioning (efficiency) of these markets. The students
would be given enough understanding of derivatives markets to take up any specific issues related to
these markets later (dissertation or elective courses).
PEDAGOGY
The course will follow a mix of instruction oriented sessions and learning through participations. In
case of instruction oriented sessions, important concepts will be discussed by the instructor and it is
highly recommended that students are adequately prepared either for instruction oriented sessions or
their own discussion/presentation/case discussion etc.
LEARNING OUTCOME
After attending this course, students will be able to understand the basic concepts of derivatives
markets, derivatives products, functioning and important roles of the market. Student would be able
to appreciate and critically analyze different issues raised in the derivatives markets. They would be
participating in the debate rising in this area. Their knowledge/understanding about different
derivatives markets (Indian/ Global) is also accepted to increase.
Prerequisite: No prior knowledge about economics or any other areas is required.
2
MBA-2 (2015-2016)
JGBS
Fall Semester
Derivatives and Risk Management
Credit
1.
5
Faculty
Dr. Brajesh Kumar
Sessions
18
Classroom-Based
SESSION PLAN
Sessio
n
Sub-topics
REVIEW OF
Measuring Interest Rates
Future and Present Value
Annuity and Perpetuity
Risk and Return calculation
Normal Distribution and its properties
Mean, standard deviation and covariance
IMPORTANT
1
FINANCIAL AND
MATHEMATICAL
CONCEPTS
INTRODUCTION TO
2
4
PRICING OF
FORWARD AND
FUTURES
Pandey)
Chapter 2
Futures and Forward contacts
Types of Traders
Difference Between Futures and
Forward contacts
Specification of Futures and
Forward contacts
Importance of Delivery
Cost of Carry Model
Futures Vs Forward price
Futures price as expected future
FUTURES AND
FORWARD MARKETS
FM 1 (I M
Chapter 1
MARKETS AND THEIR
INTRODUCTION TO
Readings of
Introduction to financial derivatives product
(Futures, Forward, Swaps, Options)
Understanding of Price discovery and
Hedging Role of Derivatives Markets
DERIVATIVES
IMPORTANCE
3
Pre-session
Reading/
Assignment
Topic
Chapter 5
spot Price
5
IMPORTANT ROLES
OF FORWARD AND
FUTURES
Price Discovery
Hedging
6
STOCK INDEX AND
Index concept
Pricing stock index and Exchange Rate
future
EXCHANGE RATE
FUTURES
Chapter 3
Chapter 3
3
MBA-2 (2015-2016)
JGBS
Fall Semester
Derivatives and Risk Management
Credit
7
8&9
10
11&12
1.
5
Faculty
COMMODITY
FUTURES AND
EXCHANGE RATE
FUTURES
INTRODUCTION TO
OPTIONS MARKETS
Sessions
18
Risk management with stock index and
Exchange Rate futures
Convenience yield and its role in pricing
commodity futures
Agricultural Vs non-agricultural futures
Risk Management through Commodity
Futures
Specification of Stock Options
Payoffs from options
Moneyness of Options
Put-Call Parity
PRICING OF OPTIONS
16 &
17
The Greek Letters
Understanding and
Modeling Risk
Chapter 5
9
Chapter 9
OPTIONS PRICES
TRADING STRATEGY
USING OPTIONS
Classroom-Based
Chapter 8 &
FACTORS AFFECTING
13, 14
15
18
Dr. Brajesh Kumar
Bull and Bear Spread
Box Spread
Butterfly Spread
Straddle and Strangles
Strip and Straps
Binomial model
Basics of Black-Scholes-Merton Model
Delta Hedging
Theta
Gamma
Vega
Rho
Volatility Estimation and Value at Risk
(VaR) Modeling
Chapter 10
Chapter 11
& 13
Chapter 17
Classnotes
EVALUATION
Weight
Project
50%
Final Exam
50%
Total
100%
PRESCRIBED AND RECOMMENDED READINGS:
4
MBA-2 (2015-2016)
JGBS
Fall Semester
Derivatives and Risk Management
Credit
1.
5
Faculty
Dr. Brajesh Kumar
Sessions
18
Classroom-Based
Prescribed Text:
Options, Futures and Other Derivatives (Seventh Edition) By John C. Hull and Sankarshan Basu
Recommended Readings:
Financial Derivatives (Fourth Printing) By S S S Kumar
Derivatives and Risk Management (Fifth Reprint) By J R Verma.
5
JGBS
Fall Semester
Derivatives and Risk Management
Credit
1.
5
Faculty
Course Title:
Dr. Brajesh Kumar
Sessions
18
Classroom-Based
Derivatives and Risk Management
Course Number:
Course Duration:
One Semester
No. of Credit Units:
1.5
Level:
Second Year (Core Elective-Finance) (MBA)
Hours of Teaching:
22.5 hrs
Medium of Instruction:
English
Pre-requisites:
None
1
MBA-2 (2015-2016)
JGBS
Fall Semester
Derivatives and Risk Management
Credit
1.
5
Faculty
Dr. Brajesh Kumar
Sessions
18
Classroom-Based
COURSE OVERVIEW
The main objective of the course is to introduce students the concepts of derivatives products such as
futures, options, swaps, role of derivatives markets, pricing of derivatives, hedging and investment
strategies etc. As it is a first course in the derivatives, emphasis is given to understand the basics of
derivatives products and functioning of markets rather than modeling (hedging, price discovery,
pricing) and analyzing (mathematically) the functioning (efficiency) of these markets. The students
would be given enough understanding of derivatives markets to take up any specific issues related to
these markets later (dissertation or elective courses).
PEDAGOGY
The course will follow a mix of instruction oriented sessions and learning through participations. In
case of instruction oriented sessions, important concepts will be discussed by the instructor and it is
highly recommended that students are adequately prepared either for instruction oriented sessions or
their own discussion/presentation/case discussion etc.
LEARNING OUTCOME
After attending this course, students will be able to understand the basic concepts of derivatives
markets, derivatives products, functioning and important roles of the market. Student would be able
to appreciate and critically analyze different issues raised in the derivatives markets. They would be
participating in the debate rising in this area. Their knowledge/understanding about different
derivatives markets (Indian/ Global) is also accepted to increase.
Prerequisite: No prior knowledge about economics or any other areas is required.
2
MBA-2 (2015-2016)
JGBS
Fall Semester
Derivatives and Risk Management
Credit
1.
5
Faculty
Dr. Brajesh Kumar
Sessions
18
Classroom-Based
SESSION PLAN
Sessio
n
Sub-topics
REVIEW OF
Measuring Interest Rates
Future and Present Value
Annuity and Perpetuity
Risk and Return calculation
Normal Distribution and its properties
Mean, standard deviation and covariance
IMPORTANT
1
FINANCIAL AND
MATHEMATICAL
CONCEPTS
INTRODUCTION TO
2
4
PRICING OF
FORWARD AND
FUTURES
Pandey)
Chapter 2
Futures and Forward contacts
Types of Traders
Difference Between Futures and
Forward contacts
Specification of Futures and
Forward contacts
Importance of Delivery
Cost of Carry Model
Futures Vs Forward price
Futures price as expected future
FUTURES AND
FORWARD MARKETS
FM 1 (I M
Chapter 1
MARKETS AND THEIR
INTRODUCTION TO
Readings of
Introduction to financial derivatives product
(Futures, Forward, Swaps, Options)
Understanding of Price discovery and
Hedging Role of Derivatives Markets
DERIVATIVES
IMPORTANCE
3
Pre-session
Reading/
Assignment
Topic
Chapter 5
spot Price
5
IMPORTANT ROLES
OF FORWARD AND
FUTURES
Price Discovery
Hedging
6
STOCK INDEX AND
Index concept
Pricing stock index and Exchange Rate
future
EXCHANGE RATE
FUTURES
Chapter 3
Chapter 3
3
MBA-2 (2015-2016)
JGBS
Fall Semester
Derivatives and Risk Management
Credit
7
8&9
10
11&12
1.
5
Faculty
COMMODITY
FUTURES AND
EXCHANGE RATE
FUTURES
INTRODUCTION TO
OPTIONS MARKETS
Sessions
18
Risk management with stock index and
Exchange Rate futures
Convenience yield and its role in pricing
commodity futures
Agricultural Vs non-agricultural futures
Risk Management through Commodity
Futures
Specification of Stock Options
Payoffs from options
Moneyness of Options
Put-Call Parity
PRICING OF OPTIONS
16 &
17
The Greek Letters
Understanding and
Modeling Risk
Chapter 5
9
Chapter 9
OPTIONS PRICES
TRADING STRATEGY
USING OPTIONS
Classroom-Based
Chapter 8 &
FACTORS AFFECTING
13, 14
15
18
Dr. Brajesh Kumar
Bull and Bear Spread
Box Spread
Butterfly Spread
Straddle and Strangles
Strip and Straps
Binomial model
Basics of Black-Scholes-Merton Model
Delta Hedging
Theta
Gamma
Vega
Rho
Volatility Estimation and Value at Risk
(VaR) Modeling
Chapter 10
Chapter 11
& 13
Chapter 17
Classnotes
EVALUATION
Weight
Project
50%
Final Exam
50%
Total
100%
PRESCRIBED AND RECOMMENDED READINGS:
4
MBA-2 (2015-2016)
JGBS
Fall Semester
Derivatives and Risk Management
Credit
1.
5
Faculty
Dr. Brajesh Kumar
Sessions
18
Classroom-Based
Prescribed Text:
Options, Futures and Other Derivatives (Seventh Edition) By John C. Hull and Sankarshan Basu
Recommended Readings:
Financial Derivatives (Fourth Printing) By S S S Kumar
Derivatives and Risk Management (Fifth Reprint) By J R Verma.
5
