Massive open online course (MOOC) Undertaken

On

Financial Derivatives a Quantitative Finance View

Authorized by

Udemy

Submitted in partial fulfillment of the requirements for the award of the

Degree of Bachelor of Business Administration Bachelor of
Business Administration (Finance & International Business) Of

CHRIST (Deemed to be University)

By

Arisetty Nithin
Reg. No. 1823609

Under the guidance of

Dr. Rajani Ramdas

School of Business and Management

CHRIST (Deemed to be University)
BENGALURU
2020
CERTIFICATE
 CERTIFICATE

This is to certify that Arisetty Nithin, Reg. No. 1823609 is a bonafide student
of Bachelor of Business Administration (Finance & International Business) of
CHRIST ( Deemed to be University ), Bangalore and he has prepared and
submitted the Internship report on the Massive open online course(MOOC)
titled “Financial Derivatives a Quantitative Finance View” authorized by
Udemy in partial fulfillment of the requirements for the award of the Degree of
Bachelor of Business Administration (Finance & International Business) of
CHRIST ( Deemed to be University ), Bengaluru, for the academic year 2020-
2021.

Place: Bengaluru Dr. Joby Thomas

Date: 10.08.2020 Head of the Department

School of Business and Management
Christ (Deemed to be University)
Bannerghatta Road, Hulimavu
Bengaluru -76
 CERTIFICATE

This is to certify that the Internship report, Massive open online

course(MOOC) titled “Financial Derivatives a Quantitative Finance View,”
authorized by Udemy submitted to CHRIST( Deemed to be University ), in
partial fulfillment of the requirements for the award of the Degree of Bachelor
of Business Administration (Honors) / Bachelor of Business Administration
(Finance & International Business) is a record of original study undertaken by
Arisetty Nithin, during the period 2020 – 2021 in the School of Business
Studies and Management at CHRIST ( Deemed to be University ), Bengaluru,
under my supervision and guidance. The Internship report has not formed the
basis for the award of any Degree/ Diploma/ Associate ship/ Fellowship or
other similar title of recognition to any candidate of any University.

Date: Dr. Rajani Ramdas

 DECLARATION

I, Arisetty Nithin, hereby declare that the project report, Massive open online
course(MOOC) titled “Financial Derivatives a Quantitative Finance View,”
authorized by Udemy submitted to CHRIST ( Deemed to be University ), in
partial fulfilment of the requirements for the award of the Degree of Bachelor
of Business Administration (Finance & International Business) is a record of
original and independent study undertaken by me during 2020–2021 under the
supervision and guidance of Dr. Rajani Ramdas, School of Business Studies
and Management and it has not formed the basis for the award of any Degree/
Diploma/ Associate ship/ Fellowship or other similar title of recognition to any
candidate of any University.

Date: Arisetty Nithin,

 ACKNOWLEDGEMENTS

I would like to express my profound gratitude to all those who have been
instrumental in the preparation of this MOOC report. I wish to place on records, my
deep gratitude to my mentor Dr. Rajani Ramdas, for her expert advice and help. I
would like to thank Dr. (Fr). Thomas.C. Mathew, Vice Chancellor and Dr. Joby
Thomas,HOD, for their support. I am deeply grateful to Udemy platform, for
providing me the course.

Arisetty Nithin
 Internship Report Format

Contents

Preliminary pages:
- Title page
- Certificate (Organization)
- Certificate (Academic coordinator)
- Certificate (Guide)
- Declaration
- Acknowledgement
- Contents
- List of tables/charts
1. Introduction
1.1 Introduction to the course
1.2 Objectives of the course
2. Learning outcome of the course
3. Weekly Report
3.1 Week: 01
3.2 Week: 02
3.3 Week: 03
3.4 Week: 04
3.5 Week: 05
3.6 Week: 06
4. Interaction with Faculty Guide
5. Conclusion

References (in accordance with APA 6th ed)

Annexures

1 Introduction:
I. Introduction to the course:

This course is classified in to 6 sections, which includes fundamentals of finance,

Arbitrage, Forwards, Futures & swaps, stochastic processes and asset prices. So this is a
course in financial derivatives from the quantitative finance point of view. Many finance
students and professionals find derivatives the most challenging subject in their field.
But if you have a background in quantitative fields, then this course is very easy &
informative about the techniques and strategies we may use while trading these
instruments. After completing this course I had a deep mastery of the fundamental
derivative structures traded on markets today: forwards, futures, swaps, and options.
But since this course is presented by a practitioner I also learn how derivatives are
actually used in the real world, as tools for both speculation and risk management.

The world of finance and markets is fast-paced and exciting, but can also be very
intimidating. In the heat of the moment, the markets are volatile and unpredictable,
positions go south in unanticipated ways, we’ll have traders yelling at us, we’ll have
computer software failing, we are relying on data we can't trust. Keeping your head
above water in this environment can be well nigh impossible. So you compulsory
needs basic fundamentals of the concepts to save the day.

The major topics covered under this course are as follows:

 Interest rate fundamentals

 Periodic and continuous compounding
 Discounted cash flow analysis
 Bond analysis
 The fundamentals of equity, currency, and commodity assets
 Options
 Put-call parity
 Long and short positions
 The principle of arbitrage
 The Law of One Price
 Forwards, futures, and swaps
 Risk management principles
  Futures hedging

These are the major concepts covered in the course. A quantitatively strong
business background is more than enough to meet these requirements. Any decent
course in statistics and the basics of calculus is enough. At the end of the course
we can expect a valued knowledge of derivative markets and technicalities related
to it.

1.2 Objectives of the course:

 Learn the fundamentals of derivatives at a quantitative level

 Master arbitrage, the core principle underlying derivatives, quantitative

risk management and quantitative trading

 Use derivatives to control and manage financial risk

 Price forwards, futures, swaps and options

 Understand the Black-Scholes theory and formula intuitively, avoiding

stochastic calculus

 Learn the limitations of the Black-Scholes theory, and how it is used in

practice

 Python based tools are provided for computations with bonds, yield
curves, and options

2. Learning outcome of the course:

The role of a quantitative analyst in an investment bank, hedge fund, or financial
company is an attractive career option for many quantitatively skilled professionals
working in finance and we need to move to the next level, it is a gateway to the
quantitative finance knowledge required for this role that builds on the technical
foundations and for this development of skills this course is very helpful.
At the end of this course we should be able to:
 Describe the dimensions of performance and risk relevant to financial firms.
  Calculate contemporary measures of financial measures of performance and
risk.
 Master arbitrage, the core principle underlying derivatives, quantitative risk
management and quantitative trading
 Design hedging strategies to manage market risks (e.g., currency, commodity)
 Evaluate the economic environment and the impact of governmental economic
policies on derivative markets.
 Describe the impact that financial innovation, advances in technology, and
changes in regulations has had on the structure of the financial derivative
industry
The course has options to choose in any way we want to work throughout and one
can even choose the whole Financial Derivative instrument course and the best
point of it is that it doesn't take much time to complete the course, max 2 months
and one can apply for jobs right after the course completion in respect to Financial
analyst.

Weekly report:
3.1 Week: 01

Topics learned

 In the first week, I learned Role of markets and products in financial markets
and how they are effect by some concepts like Caveat, Black schools formulae
( Not briefly explained, just told the importance of these concepts in security
markets).
 I also learned some fundamental concepts like Financial Engineering VS
Financial Economics, Time or Period models (Discrete and Continuous time
models), central problems of the financial economics.
 After all these basic concepts, I learned the main topic i.e. no arbitrage (weak
and strong), this concept is the main pillar of whole pricing of most products.
 After all these, there are some reading part given in the course and I read them.
In those notes they discussed about the pricing of simple bonds and fixed income
securities. These are the concepts I learned in the first week.
3.2 Week: 02

Topics learned

 In week 2, they discussed about fixed income securities and their perpetuity,
annuity and also how to price them."
 I also learned how to analyze a bond using 5 factors and also I learned a
technique called “Yield to Maturity” and how we can use that value to compare
the bonds in the market.
 I learned about the Floating rate bonds & Term structure of interest rate. In
these concepts, they discussed about Linear Pricing, Floating interest rate and
how to calculate a price of contract that pays r(k-1)F at time K. I also learned
about some basic terms like spot rate, forward rate, discount rate
 After all these term structure interest rates they discussed about forward
contracts and also how to price them using short selling an asset and then using
no-arbitrage to set face value(F).
 Also I learned how to calculate a value of the forward contract Ft for t>0.
 After all these concepts, I took a quiz and got 100%.

3.3 Week: 03

Topics learned

 In this week, I majorly learned different types of security derivatives and how
we can price them.
 Firstly, I learned Swap contracts usage and how a financial intermediary helps
companies to avoid default risk. I also learned how a financial intermediary
price the swap contracts by taking a default fees.
 After the swap contracts, I learned about Futures, and how they are different
from forward contracts and also the pros and cons of both futures and forward
contracts. After this I learned how we can price the futures using hedging (by
taking long hedge). And I also learned about the basis risk we face while
investing in the futures and we can solve that risk by using ‘Minimum variance
hedging’.
  The 3rd derivative I learned is options, and different types of options that are
available in the market. After that I learned how intrinsic value and pay off is
used to calculate whether exercise of option is possible or not.
 I also learned that European call = American call, but the underlying asset is a
non-dividend stock.
 After these derivatives, I learned about the stock price dynamics in binomial
period (t=3) and also The St Peters berg Paradox and how Daniel Bernoulli
resolved the paradox by introducing utility factor i.e. log(.) and after this I
learned about Type A and Type B arbitrages and how this arbitrage works in a
1-period binomial model.
 Options pricing in 1-period binomial period by Type A arbitrage creating
replicating portfolio. At last they discussed a derivative pricing model, by this
model we can price any derivative security. And how the option pricing doesn’t
depend on the probability P

3.4 Week: 04
Topics learned
 In this week, I learned how a 3-period binomial model is used and how we can
find the price of the derivative security in 3-period binomial model using
backward method i.e. from t=3.
 After this I learned how to calculate the probability of different prices at t=3
and at last by using binomial probability.
 After the introduction of the 3-period binomial model, I learned how to price a
European call option using this model but in this model we learned to price in
two different models i.e. backward from t=3 and by calculating using formulae
Co.
 First fundamental theorem of asset pricing was also learned by me.
 Now I learned how to use replicating strategies in binomial model. And also I
learned about self financing trading strategies and how we can use this self
financing strategy as a dynamic replication in order to find both European
option and American option.
  I also learned the difference we will face after calculating American option and
European option.
 A dice throwing game is introduced to us and also how we can calculate any
security derivative that includes dividend.
 After options pricing in binomial model, I learned how to calculate future
pricing and forward pricing on binomial model.
 After all these pricing I learned the major model i.e. “BLACK-SCHOLES
MODEL” and how this differs from the binomial model I terms of variables
etc.
3.5 Week: 05
Topics Learned
 In this week, I learned how a 2-period binomial model is used and how we can
find the price of the derivative security in 2-period binomial model using
backward method i.e. from t=2.
 After this I learned how to calculate the probability of different prices at t=2
and at last by using binomial probability.
 After the introduction of the 2-period binomial model, I learned how to price a
European call option using this model but in this model we learned to price in
two different models i.e. backward from t=2 and by calculating using formulae
Co.
 The stylized facts of asset prices are a collection of properties enjoyed by time
series of real asset prices and real asset returns that have been observed across a
broad range of assets traded on markets today and across many different asset
classes and about these stylized facts introduction I learned in this week.
 Brownian motion has a significant probability of attaining negative values
adding a drift term reduces that to some degree but it doesn't eliminate it. These
negative values are explained in this course.

4 Interactions with Faculty Guide

Despite of many difficulties, Rajani madam addressed all our concerns regardless of
timing. She thoroughly responded to our Mails and Whatsapp messages. She guided
us with maximum support and patience. We interacted every weekend by sending the
 weekly report including what are the new things that are leant through the course in
that particular week. She forwarded important messages to the group and gave us
enough time to complete our tasks and she used to remind us about the work we need
to submit in that week. For a example I faced a major problem in the middle of the
course and I mailed her about it she solved my problem within hours and showed me
a way to overcome it. So from my point of view she did her best to ensure that we all
get maximum assistance about the MOOC course.

5 Conclusion

Derivative securities markets play an important role by allowing investors who do

not want the risks associated with holding an asset to transfer it to those who do.
However, because they are markets for risk as opposed to physical assets, derivatives
markets can be very dangerous places for unsophisticated investors. People who
reduce their risk by entering a derivative market are called hedgers, and those who
increase their risk are called speculators. The derivative securities markets play a
vital role in the modern financial systems, and without them many common business
transactions would be rendered much riskier or practically impossible.
At last I completed my course and tried to attain maximum knowledge and content
from it, informed faculty guide about all the things we done in the due course and
interacted with our fellow classmates, submitted weekly report at the end of every
week for 5 weeks and got a certificate on Udemy platform. This report contains all
the learning outcomes from the course, objectives of the course and weekly reports.
Despite of many challenges and hurdles we fought and completed our MOOC course
on time and submitted our works at the right time.