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OFS-P10
PGDM 2010-2012: Term – IV

Options, Futures,and Swaps

Course Facilitator: Sunil K. Parameswaran


Objectives:
This is a foundation course on Financial Derivatives, which will attempt to build a platform to facilitate further study of other advanced topics such as Fixed Income Securities and International Finance.

The course will begin from first principles, and does not pre-suppose any knowledge of the subject. Students are however expected to be comfortable with the basic principles of Finance that are covered during the first year of the PGP program. A fair knowledge of mathematical and quantitative techniques is expected. But no one is expected to demonstrate Rocket Science related skills. Advanced topics such as Stochastic Calculus, which will be required for the study of options, will be introduced in the course itself. The most important requirement for such courses is that students should not have a phobia of mathematics.

In the process of the study of Derivatives and Derivative Markets there will arise a need for knowledge of the underlying primary securities and their markets, such as stocks, bonds, stock indices, and foreign exchange. The fundamentals of such instruments and markets will be covered during the course, in order to ensure that all students are brought to the same knowledge plane. Issues pertaining to the operation of derivatives exchanges, and placement and execution of orders on such exchanges will also be dealt with in this course.

Pedagogy:
This course will rely primarily on the lecture method. There is a prescribed textbook for the course. Detailed reading material for topics not covered in the book will be distributed. A number of excellent reference books are available and serious students are strongly encouraged to read further.

Power Point will be the mode of presentation in class. Copies of the transparencies will be uploaded so that students can refer to them and take printouts if required.

The reading material and the transparencies are to a large extent self-explanatory. However some of the subtle nuances of the subject can be appreciated only by having an active and meaningful discussion in class.
Consequently regular attendance and focused study is absolutely essential.


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A movie on Dow Jones futures and futures options will also be shown.

Evaluation:
There will be a mid-term and an end-term examination. The mid-term will have 40% weightage and the end-term will have 50% weightage. There will be one home work carrying 10% weightage.

The home work has to be attempted in groups of five members. Every student is encouraged to attempt the problems individually before discussing at the group level prior to submission. Free riding is possible. However, students who depend totally on others will not derive the benefit of the learning opportunities that such home work assignments provide.

The mid-term will have a multiple-choice format with 40% negative marking. The end-term examination will have a multiple-choice format section with 40% negative marking, and an open-book theory and problem oriented section without negative marking.

Detailed Course Schedule:

1. Lectures-1&2: Introduction to Financial Institutions, Instruments, and Markets
2. Lecture-3: Types of orders and market structures
3. Lectures-4&5: Fundamentals of equity markets and stock market indices
4. Lectures-6&7: Futures, forwards, options and swaps-The fundamentals
5. Lecture-8: Valuation of forward/futures contracts
6. Lecture-9: Fundamentals of hedging and speculation
7. Lectures-10 & 11: Fundamentals of foreign exchange and foreign exchange futures & forwards
8. Lecture-12: Stock index futures, program trading and portfolio insurance.
9. Lecture-13: Introduction to options and options markets
10. Lecture-14: Arbitrage restrictions on option prices and Put-Call parity.
11. Lecture-15: Option strategies and profit diagrams
12. Lecture-16: The Binomial model and its application to various option types
13. Lecture-17: Principles of Stochastic Calculus; The Black-Scholes model and its variations
14. Lecture-18: Options on Stock Indices; FOREX; and Futures Contracts
15. Lecture-19: Exotic Options
16. Lecture-20: Fundamentals of Swaps




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Text Book

Futures and Options: Concepts and Applications by Sunil Parameswaran, Tata McGraw-Hill.

Reference Books:

1. Options, Futures and Other Derivative Securities by John Hull, Prentice Hall.

2. Futures & Options by Franklin Edwards & Cindy Ma, McGraw-Hill.

3. Fundamentals of Futures and Options Markets by John Hull, Prentice Hall.

4. Options and Financial Futures: Valuation and Uses Created By: Debasis Mohanty on 05/14/2011 at 08:39 AM
Category: PGDM-II Doctype: Document

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