Financial Derivatives and Risk Management

COURSE OUTLINE: Traditional courses on derivatives can be classified almost exclusively into those: (i) that provide a comprehensive coverage of the underlying mathematical models using stochastic calculus and develop the subject as an extension of probabilistic mathematics e.g. mathematical finance and (ii) that cover the theme purely at a superficial level focusing on the operating aspects like exchange trading methodologies, marking and margining aspects etc. They consciously avoid entering the mathematical/stochastic structure that forms the very basis of this course and it covers the pricing and applications of these instruments.

INDUSTRIES APPLICABLE TO: This course will attract immense recognition in the entire financial services industry including banks,stock & commodity exchanges, stock & commodity brokers, portfolio managers, investment bankers, market regulators, etc. Those employed in corporate finance shall also find it valuable as it would add to their versatility. Academicians will find it a gateway to further work in related areas.

Financial Derivatives And Risk Management.
Overview of Derivatives.
Forwards: Introduction & Pricing.
Forwards: Pricing & Arbitrage.
Forwards Pricing: Consumption Assets.
Futures: Introduction & Salient Features.
Futures: Margining & MTM.
Forwards & Futures Prices, Exposure.
Exposure & Risk.
Basics of Futures Hedging.
Futures Hedging: Nuances.
Futures Hedging: No of Contracts.
Futures Hedging: Examples.
Mean Variance Portfolio Theory.
Capital Asset Pricing Model.
Systematic & Unsystematic Risk.
Index Futures: Basic Theory.
Hedging with Index Futures.
Index Futures: Arbitrage, Examples.
Spot Interest Rates & YTM.
YTM, Other Yield Measures.
Interest Rate Risk.
Duration & Price Sensitivities, Immunization.
Interest Rate Futures: Salient Features.
T-Bill Futures: Applications.
T-Bill Futures: Hedging.
T-Bill Futures: Arbitrage; Eurodollar Futures.
Tailing the Hedge; Clean & Dirty Price.
US T-Bond Futures: Salient Features, Pricing.
US T-Bond Futures: Conversion Factor; Options.
Options: Basic Theory.
Options: Price Bounds, American Options.
American Options: Properties.
Basic Option Trading Strategies.
Option Strategies Contd.
Option Spread Strategies.
Stochastic Processes: Random Walk.
Stochastic Processes: Brownian Motion.
Stochastic Processes: Diffusion Equation.
Stochastic Processes: Central Limit Theorem, Stochastic Calculus.
Stochastic Calculus: Ito’s Equation.
Stock Price Distributions; Fokker Planck Equation & Solution.
Lognormal Distribution.
Option Pricing: Binomial Model, Risk Neutral Valuation.
Option Pricing: Binomial Model Contd.
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Options: Put-Call Parity.