FINM550:FINANCIAL DERIVATIVES

Course Outcomes: Through this course students should be able to

CO1 :: differentiate various types of financial derivatives.

CO2 :: assess risk and return in different derivative securities for making sound investment
decisions.

CO3 :: evaluate different trading strategies for making right choice depending on the market
situation.
CO4 :: use various strategies for hedging risk and optimizing return on the Investment.

Unit I
Introduction to financial derivatives : definition and concept, over the counter versus exchange
traded, uses of financial derivatives, participants in the financial derivatives market
Unit II
Forward and Futures : forward contracts, future contracts, future versus forwards, futures and
forwards pay-off diagrams, cash settlement, physical settlement
Unit III
Options : option contracts, option terminologies, option types, variables affecting pricing of futures
and options, the black scholes merton model for option pricing, options greeks, comparison between
future and options
Unit IV
Trading, clearing and settlement of financial derivatives : futures and options trading system,
the trader workstation, clearing entities, clearing mechanism, settlement procedure, margining
system
Unit V
Application of financial derivatives : use of futures in hedging, use of futures in speculation and
arbitrage, long and short hedge, payoff for long and short hedge, advantage and disadvantage of
hedging, speculation with bullish and bearish futures, arbitrage with overpriced and underpriced
futures, bull and bear spreads
Unit VI
Financial derivatives regulatory framework and accounting : securities contracts regulation act
1956, securities and exchange board of india act 1992, regulation for derivatives trading, accounting
for futures and options, taxation of derivatives, securities transaction tax on derivatives transactions

Text Books:
1. OPTIONS, FUTURE & OTHER DERIVATIVES by JOHN C. HULL, PEARSON

References:
1. DERIVATIVES AND RISK MANAGEMENT by RAJIV SRIVASTAVA, OXFORD UNIVERSITY
PRESS

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