Financial Derivatives

Unit

Course Description

Sessions

Unit I

Financial Derivatives: Definition, Types and Classification of Financial Derivatives, Difference Between Forwards and Futures and Futures and Options, Participants in the Derivative Markets.

3

Unit II

Forward Market: Forward Contracts, Concept and Features, Classification of Forward Contracts, Forward Trading Mechanism.

2

Unit III

Futures Markets: Futures Market Trading Mechanism Specifications of a Futures Contract, The Operation of Margins, Clearing House, Lot Size, Tick Size, Open Interest, Closing out a Futures Position.

3

Unit IV

Pricing of Derivatives: Pricing of Forwards/Futures, Index Futures, Currency Futures, Commodity Futures Using Cost of Carry Model, Relationship Between Spot Price and Futures Price, Contango and Normal Backwardation Market.

2

Unit V

The Indian Scenario of Derivatives Markets: Introduction, Evolution of Derivatives in India. Regulation: Structure of the Derivatives Market, Derivatives Regulation in Indian Stock Market, L.C Gupta Committee Recommendations.

3

Unit VI

Interest Rate Futures: Introduction, Short Term Interest Rate Futures, Pricing A T-Bill future. Long Term Futures Contracts: Application of Interest Rate Futures, Long Hedge, Short Hedge.

4

Unit VII

Swaps: Introduction, Features and Mechanics of Swaps, Major Types of Financial Swaps, Valuation of Interest Rate Swaps and Currency Swaps.

3

Unit VIII

Options: Introduction, Options Terminology, Types of Options, Payoffs from Options Positions, Option Valuation: Intrinsic and Time Value of an Option. Pricing of Options: Determinants of Option Prices, The Black-Scholes Option Pricing Model, One Step Binomial Option Pricing Model.

4