Course

Unit 1

Introduction to risk management – Meaning and need – significance -Types of risk – Types of risk management instruments -Forwards – Futures – Options – Swaps.

Unit 2

Financial derivatives – Meaning – Need- Evolution of financial derivatives markets in India – Derivative markets – Exchange – Participants – Functions – The regulatory framework of derivative trading in India – forward contracts – future contracts – Difference between forwards and futures – financial future – Future trading – currency futures- Interest rate futures – Pricing and valuation of future contracts – Value at risk – Hedging risk – Hedging with stock index future.

Unit 3

Options – meaning – need and significance – options and futures – fundamental option strategies – types of option – put – call – trading strategies of risk instruments – positions in options.

Unit 4

Pricing of options- intrinsic value and timevalue – pricing at the expiry of contract – factors affecting optionpricing – put – call-paritypricing-models of pricing – binomial option – pricing models – Black Scholes pricingmethods.

Unit 5

Swap – meaning and definition – development – the structure of swap dealing for risk management

– interest rate swap – forward swap and swap option contracts – cancellable and extendable swaps- no generic swaps transactions, Currency swaps – Valuation and pricing of swaps.

Course Objective:

To equip the students with an in-depth knowledge of derivatives and risk management, by giving them the knowledge of basics in options, Forwards, futures, and swaps.

Course Outcomes:

The students will be able to:

CO1: Understand the key terminology and definitions related to financial derivatives and risk management strategies.

CO2: Identify the pricing models of future contracts.

CO3: understand the role of options in hedging against market risk

CO4: Assessment of option market

CO5: Assess the effectiveness of risk management functions of swap transactions.

Textbooks:

1. S L Gupta – Financial Derivatives: Theory, Concepts and Problems – PHI
2. Rajeev Srivastava – Derivatives and Risk Management – Oxford University Press

References:

1. S. S. Kumar – Financial Derivatives – PHI
2. Parasuraman N – Fundamentals of Financial Derivatives – Wiley India
3. Bishnupriya Mishra – Financial Derivatives – Excel Books
4. Bansal – Derivatives and Financial Innovations – McGraw Hill