Derivatives And Risk Management

Syllabus

Derivatives and Risk Management

Module 1: Derivatives – An Introduction                                                   6 Hours

Concept of Risk -Types of Risks of a Business Enterprise. Financial Risk and its Types (Market Risk, Credit Risk, Liquidity Risk and Operational Risk). Risk Analysis in Capital Budgeting (Only Theory)– Measuring and Managing Capital Budgeting Risks – Sensitivity Analysis, Scenario Analysis, Simulation, Standard Deviation and Co-Efficient of Variation, Risk Adjusted Discount Rate Method, Certainty Equivalent Co-efficient Method, Decision Tree Analysis and Probability Distribution Method.

An Introduction to derivatives, Elements of a Derivative Contract, Factors Driving Growth of Derivatives Market, Types of Derivatives, Types of Underlying Assets, Participants in Derivatives Market, Advantages and Disadvantages of Trading in Derivatives Market, Derivative Trade in India – A Current Scenario.

Module 2: Forward and Futures                                                                 12 Hours

Forward Contract, Settlement of Forward Contract, Futures Contract, Futures Contract Specification and Terminologies, Difference, Pricing, Arbitrage, Concept of Convergence Relationship Between Futures Price and Expected Spot Price, Basis and Basis Risk, Pricing of Futures Contract, Cost of Carry Model. Speculation and Arbitrage using Futures, Long Hedge – Short Hedge, Cash and Carry Arbitrage, Reverse Cash and Carry Arbitrage, Payoff Charts and Diagrams for Futures Contract, Perfect and Imperfect Hedge.

Stocks and Index Futures: Stock & Index Futures, Index Futures, Forward Contracts & Stocks, Future Contract on Indices & Individual Stocks, Features, Specifications, Pricing, Hedging, Speculation & Arbitrage with Stock Index Futures.

Module 3: Commodity Futures                                                                     8 Hours

History and Origin, Types of Commodities Traded, Structures of Commodities Market in India, Participants in Commodities Market, Trading in Commodities in India (Cash and Derivative Segment), Commodity Exchange in India and Abroad, Reasons for Investing in Commodities. Commodity Derivatives, Commodity Exchanges and Commodity Contracts. Pricing Commodity Forward, Futures & Options. Crude Oil, Gold, Base Metal Derivatives. Pricing, Hedging, Perfect & Imperfect Hedge, Basis Risk, Optimal Hedge Ratio. Trading, Clearing and Settlement in Derivatives Market.

Module 4 : Options                                                                                         12 Hours

Options Contract Specifications, Terminologies, Call Option, Put Option, American, & European Options. Difference Between Futures and Options, Pay-Off and Pay-Off Diagrams. Understanding Options Quotations, Trading & Settlement. Option Pricing: Boundary Conditions for Option Pricing. Factors Affecting Option Premium. Moneyness in Case of Options, Intrinsic Value & Time Value, Arbitrage-Based Relationship of Option Pricing.

Module 5: Options Valuations and Strategies                                         12 Hours

Price Difference Approach; Expected Gains Approach; Binomial Model; Risk Neutral Method and Black- Scholes Model – Assumption, Interpretation. Factors Affecting Option Price. Option Strategies: Put Call Parity, Protective Put, Covered Call. Trading Strategies with Options – Straddle, Strip, Strap, Strangle, Spreads- Butterfly Spread. Options-Sensitivities Delta & Delta Hedging, Theta, Gamma & Neutrality, Greek Letters

Module 6: Trading, Clearing and Settlement in Derivatives Market 6 Hours

Meaning and Concept, SEBI Guidelines, Trading Mechanism – Types of Orders, Clearing Mechanism – NSCCL – its Objectives and Functions, Settlement Mechanism – Types of Settlement. (b) Types of Risk: Value at Risk, Methods of Calculating VaR, Risk Management Measures, Types of Margins, SPAN Margin (only theory).