Indian Institute of Management

Ranchi

Course Number

Course Outline
Term IV, 2017-2019

INSTRUCTOR AND CONTACT INFORMATION

Name: Prof. Sayantan Kundu
E-mail: sayantan,k@iimranchi.ac.in
Office Tel: +91-9830213098

COURSE DESCRIPTION

Financial derivatives in recent years, has become one of the most important financial
instruments in the world. Modern managers can use financial derivatives such as futures,
options and swaps to hedge particular kinds of risks or to change the returns on their portfolios
in certain ways. There are several derivative trading strategies that are used by hedge funds.
Derivative can be used to speculate and for arbitrage as well. In modern era real option has
become one important aspect of valuation too. The purpose of this course is to provide the
student with the necessary skills to value derivatives and to employ futures, options and other
related financial instruments in hedging, speculating, arbitraging and valuation. The course
will be through lectures, technical sessions and cases.

COURSE OBJECTIVE

The course objective is to prepare students to be in a position to

 analyze different derivative securities and get their values
 apply the derivative securities in appropriate setting in industry
 understand the way economy is constantly trading to hedge, speculate and arbitrage
 apply concepts learned to hedge against different risks they encounter
 apply concepts in valuation of projects, companies and decisions
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LEARNING OUTCOMES

On completion of the course, students will be able to:

1) Describe the operation of derivative markets covered in the course.
2) Calculate the price of various derivative securities.
3) Create Strategies to meet specified goals (hedging, arbitraging, speculating)
4) Evaluate and Change these strategies with changing economic conditions.
5) Apply theoretical knowledge in real life situations
6) Apply real options for valuations

ALIGNMENTS OF INTENDED PROGRAM & COURSE LEARNING OUTCOMES

Program Learning Outcomes Course Learning outcomes

 Develop competence in participants to learn and adapt to the dynamic

Describe the operation of
national and international environments and strive for excellence. derivative markets covered
 Orient the participants to apply knowledge and understanding of theories and in the course & Evaluate
concepts from basic disciplines and functional areas for creation, growth, and and Change these strategies
management of organizations. with changing economic
conditions. (1,2)
 Develop acumen to implement suitable strategies by critically analyzing both
internal and external organizational environment.
Create Strategies to meet
 Understand various approaches and techniques relevant to the organizational
specified goals (hedging,
processes, models and practices. arbitraging, speculating)
 Develop cultural sensitivity to appreciate diverse points of view in a global and Apply theoretical
environment. knowledge in real life
situations and valuations
 Exhibit high degree of integrity and ethics in behavior.
(3,4)

REQUIRED COURSE MATERIALS AND READINGS

TEXTBOOK
1) “Options, Futures and Other Derivatives” by Hull and Basu, 9th Edition, Pearson

CASES (to be procured)

1. “Application of Financial Futures”, HBS case 9-286-109
2. “Laura Martin: Real Options and the Cable Industry”, HBS Case 9-201-004
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EVALUATION

Evaluation will try to evaluate students’ conceptual understanding of the topic and their ability to apply
those learned concepts in different situations. Mid term and End term will have 30% of weightage each.
There will be two quizzes, one before mid-term and another after mid-term and each of them will have of
10% weightage. There will be two case discussions, and each of them will have 10% marks on submission
of the case solution and participation in class discussion.

GRADING SCHEME

Component Mode Duration Weightage

Mid Term Exam Written (Individual) 90mins 30%
(Compulsory)
Written (Individual)
End Term Exam 90mins 30%
(Compulsory)
2 quizzes (Individual)
Quizzes/ Assignments 10 mins x 2 10% x 2
2 cases (Individual)
Case Solution & discussion Take home assignment 10% x 2
Participation In-class Contribution
(Individual)
Total 100%

ACADEMIC DISHONESTY
i. It may be noted that any kind of copying/plagiarism by any student and/or malpractice in
examinations will be subject to strict disciplinary action under IIM Ranchi rules. If a student is
found guilty in any such case(s), it will be recorded in his/her personal file.

ii. The reports submitted by the students like Summer Project Reports/Term Papers/ Case Study
Report/ Project Report/CIS dissertation paper or any other report will go through the anti-
plagiarism software.

iii. In all cases where the software has reported more than 30% of plagiarism by a student or
group of students, there will be automatic conversion of the grade given in that component
into “F”.

iv. The faculty may even choose to report the matter to the PGP Committee which will temporarily
convert the course grade into “F” or an “I”, issue a show cause to the student (s) and based
upon the response of the student(s) assign any punishment or its combination from the options
below.
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a. Expulsion from the Institute

b.Suspension for a specified period
c. “F” grade in the course concerned
d.Scaling down grades obtained in the specific subject
e. Repeating the course
f. Withdrawal of placement services
g.Suspension, withdrawal or made ineligible for scholarships

For details, kindly refer to PGP Manual.

Course Schedule

Session Topics to be Readings and Assessment Criteria

covered in the course Book Chapter

1 Introduction to Derivatives, mechanics of Hull & Basu: 1,2

forward and futures markets
2 Mechanics of forward and futures markets Hull & Basu: 2
3 Hedging strategies with futures, hedge Hull & Basu: 3
ratio
4 Interest rate, term structure and forward Hull & Basu: 4, 5
rate agreements (FRA), Forward &
Futures valuations
5 Swaps Hull & Basu: 7
6 Case1: Application of Financial Futures HBS Case Case solution (take home
solution submission and class discussion Application of assignment)
Quiz 1: Financial Futures Quiz 1: covers session 1
to 5
7 Introduction to options and Options Hull & Basu: 10
market
8 Stock option and option on indices & Hull & Basu: 11, 17
currencies
9 Trading strategies involving options Hull & Basu:12
10 Recap and problem solving Mid Term Exam covers
till this
11 Binomial Option Pricing Hull & Basu:13
12 Martingales, Markov Property, Weiner Hull & Basu: 14, 28
Process and Ito’s Lemma
13 Black Scholes Merton Option pricing Hull & Basu: 15
model
14 The Greeks Hull & Basu: 19

15 Hedging the Greeks Hull & Basu: 19

16 Implied Volatility and Volatility smiles Hull & Basu: 20

17 Real Options Hull & Basu: 35 Quiz 2: covers session

Quiz 2: 11 to 16
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18 Case 2: Laura Martin: Real Options and Case 2: Laura Case 2: Solution
the Cable Industry, Solution submission Martin: Real submission (take home
and discussion. Options and the assignment)
Cable Industry
19 Securitization, Credit Derivatives and Hull & Basu: 8, 25,
Exotic Options 26
20 Recap and problem solving End Term Exam covers
till this

Details of Group Project (none)