Credits  

3 Credits (20 sessions)

Faculty Name Prof. (Dr.) Ameet Kumar Banerjee
Program  PGDM (BM)
Academic Year  2021-22, Term V
and Term
Option, Futures and Swaps

1. Course Description
This course in finance covers one of the most talked-about areas in finance: Financial
derivatives, which have brought a paradigm shift in modern financial architecture. The
securities not only change the outlook but also thrown the most challenge when dealt
with them in understanding how these financial securities operate, trade, and offer a tool
for risk management. Moreover, these securities are building blocks in understanding
complex asset portfolios, strategic corporate decisions, and stages in venture capital
investing.
The global derivatives market is growing exponentially, and it is more so important to
understand both the strategic opportunities offered by these derivative instruments and
the risks they imply. The main objective of this course is to help students gain the
intuition and skills on understanding: (1) different class of derivatives (2) pricing
mechanism and a tool for hedging, and (3) using them for investment and risk
management. A part of the course will include an extensive range discussion in the use of
derivatives in asset management, interest rate derivatives, currency derivatives, credit
derivatives, as well as exotics.
2. Course Learning Outcome (CLO)
There are a few critical learnings one can expect to learn from this course.
 CLO 1 Understand the architecture financial derivatives globally and India specific.
 CLO 2 Understand Forward contracts and its hedging properties.
 CLO 3 Understand Futures contracts and its micro-structure behavior.
 CLO 4 Understand the usage of Futures contract for Hedging, Speculating and as
Arbitrage instrument.
 CLO 5 Understand the option contracts, its pricing models and Option Greeks.
 CLO 6 Understand Swap contracts and its variations.

3. Required Textbooks and Reading Material

Options, Futures, and Other Derivatives – John Hull and SankarshanBasu, Pearson
publications.

Reference Book
 An Introduction to Derivative Securities, Financial Markets, and Risk Management –
 Robert Jarrow and ArkadevChatterjea.
 An Introduction to Derivatives and Risk Management – Chance and Brooks
Tentative Session Plan

Session Topics/Activities Reading/case list etc. CLO

Number
1 Introduction to the World of Chapter 1 1
Derivatives – Challenges and
Opportunities.
2 Derivatives market in India Chapter 1 1
Introduction to interest rate, forward
rate and term structure of interest rate.
3-4 Discussion on Forward contracts, Chapter 1 2
pricing of commodity forward
contracts, interest rate forwards, and
non-deliverable forward contract.
5-6 Futures contract, specification of  Chapter 2 3
futures contract, margins and marking-
to-market, types of orders.
7-8 Hedging strategies with futures: Basis Chapter 3 4
risk, hedge ratio, hedging effectiveness, Case Study
strip and strap rolling hedges.
9-10 Hedging with single stock, speculation Chapter 3 4
using stock futures, stock index futures Article for discussion
and its pricing mechanism, portfolio
insurance using index futures
11 Interest rate futures, cheapest to Chapter 4, 5 and 6 4
delivery bonds, the pricing of bond
futures and fixed income portfolio
management
12 Fundamentals of option contracts. Chapter 8 5
13-15 Option trading strategies and put-call Chapter 9, 10, 11 and 5
parity. 13
Binomial tress and risk neutral pricing Case Study and
and the discussion on Black Scholes Article discussion
Merton formulation.

16-17 Currency and interest rate options Chapter 17 5

Option Greeks, delta -gamma hedging
and brief discussion on Exotics Case Study

Article discussion
18-20 Swap contracts, interest rate swaps, Chapter 7 6
Swaptions and currency swaps.
5. Evaluation
 Quizzes (20%):
o The course will have a minimum 3 quizzes. Out of the 3 quizzes 2 will be
individual quizzes and 1 will be a group quiz. The mode of conducting the quiz
will be communicated during the session.
 Group Project (30%)
o The details regarding the group assignment will be shared during the course
sessions.
 Mid-term examination (20%)
o Midterm will be conducted separately. It will consist of numerical, conceptual and
application-based questions.
 End term exam (30%)
o End term will consist of the course covered during all the sessions. It will consist
of numerical, conceptual and application-based questions.
 6. Academic Integrity
All the policies, rules and regulations as specified in the PGP hand book are applicable.