(Established under the Presidency University Act, 2013 of the Karnataka Act 41 of

2013)
A-2[2020] COURSE HAND OUT

SCHOOL : Management
DEPT. : Management
DATE OF ISSUE :
NAME OF THE PROGRAM : MBA
P.R.C. APPROVAL REF. :
SEMESTER/YEAR : IV Semester/2023-25
COURSE TITLE & CODE : Derivatives and Risk Management &
MBA3097
COURSE CREDIT STRUCTURE : 3-0-0-3
CONTACT HOURS : 45
COURSE INSTRUCTOR INCHARGE : Dr.Anitha.S.Yadav
CO-INSTRUCTOR : Dr. Venkat Rangaiah

PROGRAM OUTCOMES:
1. An ability to lead themselves and others to achieve organizational goals
contributing effectively to a team environment.
22. An ability to integrate functional knowledge and apply managerial skills in
changing business environment.
33. An ability to identify real life problems in different management functions and
solve them through strategic planning, critical thinking and innovation.
4. An ability to identify and evaluate business ideas and opportunities.
5
5. An ability to make data driven decisions and effectively communicate to
different stakeholders.
6. An ability to evaluate and integrate ethical and societal considerations when
making business decisions.
7. An ability to demonstrate commitment to continuous learning.
Course Prerequisites –1) Basic Quantitative skills
2) Basic understanding of Investments and Financial
Markets

Course Description: Exposure to financial markets affects most organizations. It important

to ensure that financial risks are identified and managed appropriately. Derivative instruments
such as forwards, futures, options and swaps are extensively used by institutions, businesses
as well as investors to transfer risks and at the same time allow them to take additional risk
based on the expected future market movements.
The main aim of this course is to provide a holistic understanding of types of risk
and derivatives instruments. This course is a blend of theory, problem solving and cases to
explain the concepts in an engaging manner. The course will enable formulating hedging,
arbitrage, and speculative strategies with derivatives. It also helps in understanding various
valuations models of financial derivatives.

Course Outcomes: On successful completion of the course the students shall be able to:
1) Evaluate various financial risks that affect organizations
2) Estimate the price of forward and futures contracts
3) Interpret various option trading strategies and their payoffs
4) Distinguish between credit default swap and total return swap.
Mapping Of C.O. With P.O.
[H-High, M- Moderate, L-Low]

C.O. P.O.1 P.O.2 P.O.3 P.O.4 P.O.5 P.O.6 P.O.7

N0.

1 L M M L M L M
2 L H L M M L M
3 M H M M M L M
4 L M M M H M M

MAPPING OF COURSE OUTCOME WITH PROGRAM SPECIFIC OBJECTIVES

[H-HIGH, M- MODERATE, L-LOW]

C.O.N0. PSO1 PSO 2 PSO 3 PSO 4 PSO 5

/P.O. N0.
CO1 M M L M L
CO2 L M M M M
CO3 L L M H H
CO4 M M H M M
COURSE CONTENT (SYLLABUS):
Module I: Introduction to Financial risk and Derivatives
10 Hours (Blooms ‘level selected:
Comprehension]
Financial risk- Meaning, Types of risk- market, credit, liquidity, operational, model risk.
Forms of risk- currency, interest rate, equity, commodity. Risk measurement-VaR (Value
at Risk) Risk management strategies.
Introduction to Derivatives, Meaning, Features, Classification of derivatives, Derivative
Markets-Traders, Reasons for trading derivatives. Derivatives trading in NSE/BSE,
Growth of derivatives market in India.

Module: II: Forward and Futures Contract

12 Hours [Blooms ‘level selected: Application]
Forward Contract-Meaning, features. Forward trading mechanism-forward price,
valuation and payoffs from the forward price.
Futures contract- meaning, types, features, differences between forwards and futures.
Operation of margin-types of Margins, Mark-to-market(MTM). Futures trading
mechanism. Pricing of futures-Basis risk and hedging

Module III: Options contract

[12 Hours [Blooms ‘level selected: Application]
Meaning, Option terminologies, types, distinction between futures and options, put-call
parity theorem. Option valuation. Option positions-Long and short with payoffs.
Determinants of option prices. Concept of volatility. Option pricing models - The
Binomial model and Black-Scholes model. Strategies for option trading. Hedging with
options-Delta.

Module: IV Swaps and Other Derivatives

11 Hours [Blooms ‘level selected: Comprehension]
Swaps-Meaning, features, types- Interest rate swap, Currency Swap. Swap arrangement in
India-Overnight Index Swaps (OIS).
Other Derivatives-types. Credit Derivatives- Meaning, features. Credit events by
International Swap and Derivatives Association (ISDA). Benefits of Credit Derivatives.
Components of credit risk. Credit derivatives instruments- Credit Default Swap, Total
Return Swap, credit options, credit linked notes. Credit risk management in India.
Instructional Pedagogy
Self- Learning Topics:
1. Traders in derivatives Market
2. Reasons for derivatives trading
3. Growth of Derivative Markets in India
4 Introduction to Credit derivatives

Experiential Learning: Study the implications derivatives trading with real world examples
and submit a detailed report. Virtual trading session using NSE/BSE platforms and option
trading strategy Simulations.

Participative Learning: In class activity, discussions and presentations on Futures contract,

option trading strategies pricing methods and credit default swaps

Case Study- Module I, II, III & IV

Technology Enabled Learning: Students have to access online resources in PU library and
complete the assignments.

Links:
https://www-sciencedirect-com-presiuniv.knimbus.com/science/article/abs/pii/
S1062940824001542?dgcid=api_sd_search-api-endpoint

https://www-emerald-com-presiuniv.knimbus.com/insight/content/doi/
10.1108/09513570910955461/full/html

https://www-scopus-com-presiuniv.knimbus.com/record/display.uri?eid=2-s2.0-
85145915240&origin=resultslist&sort=plf-f&src=s&sot=a&sdt=a&s=%28TITLE
%28swaps
%29%29&sl=4&relpos=7&sessionSearchId=aa76d8bae41d88d48a30e4ae96dbdc99

https://www.sciencedirect.com/science/article/abs/pii/S0957582015001275

Books:
Prescribed Textbook:
T1. S.L. Gupta, Financial Derivatives: Theory, Concepts and Problems. Prentice Hall India
Learning.

Reference Books
R1. John C. Hull, Options Futures & Other Derivatives, Pearson
R2. S.S.S. Kumar, Financial Derivatives, Prentice Hall India Learning.
R3 Vohra & Bagri, Futures and Options , TMH Publications
 COURSE SCHEDULE:
Sl. Activity Starting Concluding Date Total Number
No Date Of Hours
.
01 Overview of the course 20th Jan 25 20th Jan 25 1
02 Module 1 21st Jan 12nd Feb 9
02 Module 2 15th Feb 15th March 12
03 Module 3 15th March 12th April 12
05 Mid –Term Examination
06 Module 4 14th April 9th May 11
07 End-Term Examination

SCHEDULE OF INSTRUCTION:

Session Topics Course Delivery Ref.

No. Outcome Mode
No.
1 Introduction –Overview of the Syllabus Lecture

Module I: An Overview of Financial risk CO1 Lecture

2 Financial risk- Meaning, Types of risk- market,
credit, liquidity, operational, model risk.

3 Forms of risk- currency, interest rate, CO1 Problem

solving
4 Forms of risk- equity, commodity. CO1 Problem
solving T1
5 Meaning, Features, Classification of CO1 Lecture T1
derivatives,
6 Derivative Markets-Traders, Reasons for CO1 Lecture
trading derivatives.
7 Derivatives trading in NSE/BSE, CO1 Lecture
8 Growth of derivatives market in India. CO1 Lecture
9 Risk measurement-VaR (Value at Risk) CO1 Lecture
Risk management strategies.

10 Module: II Forwards and Futures contract CO2 Lecture T1

Forward Contract-Meaning, features.
11 Forward trading mechanism-forward CO2 Problem
solving
12 valuation and payoff from the forward price. CO2 Problem
solving
13 valuation of forward price CO2 Lecture
Futures contract- meaning, types,
14 features, differences between forwards and CO2 Problem
futures., Operation of margin-types, Mark to solving
 market.
15 Futures contract- meaning, types, Futures CO2 Problem
trading mechanism. solving

16 Operation of margin-types CO2 Lecture

17 Margin statement CO2 Problem

solving
18 Margin statement CO2 Problem
solving
19 Futures trading mechanism. Pricing of futures- CO2 Problem
Basis risk and hedging solving
20 Pricing of futures-Basis risk and hedging CO2 Problem
solving
21 Case Study CO2
22 Module III: Options contract CO3 Lecture
Meaning, Option terminologies, types,
distinction between futures and options
23 Types, distinction between futures and options. CO3 Lecture
Option valuation.
24 Put-call parity theorem Option positions-Long CO3 Problem
and short with payoffs. solving
25 Option valuation. CO3 Problem
solving

26 Option positions-Long and short with payoffs. CO3 Problem T1 &R1

solving

21 Option pricing models - The Binomial CO3 Problem

model ,Assumptions solving
22 Option pricing models - The Binomial model CO3 Problem
solving

23 Assumptions of BSM CO3 Problem

solving
24 Option pricing models- Black-Scholes model CO3 Problem
solving
25 Option pricing models- Black-Scholes model CO3 Problem
solving
26 Option pricing models- Black-Scholes model CO3 Problem
solving
27 Strategies for option trading CO3 Problem
solving
28 Strategies for option trading CO3 Problem
solving
29 Strategies for option trading CO3 Problem
solving
30 Strategies for option trading CO3 Problem
solving
31 Concept of volatility-Historical and Implied CO3 Problem
solving
32 Determinants of option prices CO3 Problem
solving
33 Hedging with option-Delta CO3 Problem
solving

34 Module: IV Swaps and Other Derivatives CO4 Lecture

Swaps-Meaning, features, types-
35 types- Interest rate swap, Currency Swap, CO4 Lecture
equity swap and commodity swap.
36 Numerical on Interest Rate swap CO4 Lecture
37 Numerical on Currency Swap CO4 Lecture
38 Swap arrangement in India- Overnight Index CO4 Lecture
Swaps (OIS).
39 Other Derivatives-types. Credit Derivatives- CO4 Lecture
Meaning, features
40 Credit events by International Swap and CO4 Lecture
Derivatives Association (ISDA). Benefits of
Credit Derivatives. Components of credit risk.
Credit derivatives instruments-.
41 Credit Default, Total Return, Credit risk CO4 Lecture T1 &R1
management in India.
42 credit options, credit linked notes CO4 Lecture
43 Credit risk management in India. CO4 Lecture
44 Revision CO4 Lecture
45 Revision CO4 Lecture

ASSESSMENT SCHEDULE:
Sl.No Assessment Type Marks Weightage Course Outcome
Number
1 Assignment 10 5% CO1
2 Case study 20 10% CO2
 3 Presentations 20 10% C03&CO4
4 Mid Term 50 25% CO1& CO2
5 End Term (all 100 50% I,II,III & IV
modules)

SAMPLE QUESTIONS:

SL QUESTION MARKS COURSE BLOOM’S

NO OUTCOME LEVEL
NO.
1 Differences between forwards and 5 2 C
futures contract
2 Explain various types of Margins. 10 2 A
3 State the assumptions of BSM and BM 5 3 A
4 Explain the significance of Credit 5 4 C
Derivatives.

Target Set For Course Outcome Attainment:

Sl.N C.O. Course Outcomes Target set for

o No. attainment in
percentage
1 CO1 Evaluate various financial risks that affect 60
organizations
2 CO2 Estimate the price of forward and futures contracts 70
3 CO3 Interpret various option trading strategies and their 65
payoffs
4 CO4 Distinguish between credit default swap and total 65
return swap.

Signature of the course Instructor

This course has been duly verified Approved by the D.A.C.

Signature of the Chairperson D.A.C.