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Financial Derivatives

Course Outline


  • Purposes and Benefits of Derivatives
  • Criticism and Misuses of Derivatives
  • Types of Derivatives: Forward Contracts, Future Contracts, Options Contracts
  • Types of Traders –  Hedgers, Speculators, Arbitrageurs


Mechanics of Futures Market  

  • Specification of a Futures Contract
  • Convergence of Futures Price to Spot Price
  • Operations of Margins, Delivery, Forwrad vs. Futures Contracts



  • Interest Rate Swaps
  • Currency Swap
  • Design of Swap
  • Valuation of swap


Mechanics of Options Markets

  • Definitions
  • Characteristics
  • Types, Graphical Presentation of Option’s Payoff and Profit


Properties of Stock Options

  • Factor Affecting Option Prices
  • Assumptions
  • Upper and Lower Bounds for Options Prices
  • Put-Call Parity


Trading Strategies Involving Options

  • Strip
  • Strap
  • Straddle
  • Strangle
  • Spreads and other Combinations


Introduction to Option Valuation            

  • Risk Neutral Valuation
  • One-Step Binomial Model
  • Two-Step Binomial Trees
  • Black–Scholes Model
  • Assumptions
  • Implied volatilities
Module Objective:

This module aims at getting the participants acquainted with the key concepts, basic characteristics, principle and pricing of derivatives instruments. It provides a working knowledge of how derivatives instruments can be analyzed and used in portfolio management.

The main objective is to provide clear idea about the derivatives market because equity market is being shifted into the derivatives market very soon

Module Structure

The course is divided into the following sections:

Part 1: Financial Derivatives and its Working Methodology

Part 2: Pricing of Financial Derivatives

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