POST GRADUATE PROGRAM

Course Outline
Course for

PGDM Term-VI Aug 09 11 Batch

Course Code &Title

MGT660 Financial Derivatives & Risk Management (2 Credits)

Specialisation/Venue

Finance A/LHW - 201

Course Instructor

Dr. Rekha

Office

Alliance Business School, Central Campus (EF 008)

Phone

080-30938136

Email

rekha.us@absindia.org

Class meets

23rd Aug, 2010 (as per the schedule)

Contact hours

3.30 pm to 4.30 pm

Required materials

Text book-Options Futures & Other Derivatives

John C.Hull - Sankarshan Basu - PHI, 7th edition.

Instructors profile:
A Post Graduate in Commerce and Management has been awarded Ph.D., in Finance. She has also a Post
Graduate in Computer Applications. She was in the Industry for about 5 years and has been teaching since for
the past 12 years. Her areas of interests are Corporate Finance, Financial Derivatives & Risk Management,
Strategic Corporate Finance, Financial Innovations, Fixed Income Securities & Strategies, Financial Accounting
& Analysis, Project Management, Mergers & Corporate Restructuring.
Course Description:
When the world is becoming a global village, effective risk management system is the need of the hour. Risk
transfer is one of method used for reducing risks. Derivatives are one of the alternative tools available to the risk
manager. Derivatives, a risk management tool have become an integral part of the financial system of a country
as well as at the international level. They have influenced almost every aspect of capital and money markets all
over the world ranging from investing, raising of funds and managing the risk. The purpose of this course is to
familiarize the students with derivative products and to examine a number of exercises & problems involving
their application. The course covers comprehensive treatment of risk management and financial derivatives
instruments like futures, forwards, options, swaps and other structured financial products which are essential and
significant to be successful in financial and trading activities.
Required Readings:
Options Futures & Other Derivatives - John C. Hull, Sankarshan Basu - PHI, 7th edition.
Suggested Supplementary Text:
1.
2.
3.
4.
5.
6.

Risk Management and Derivatives Rene M. Stulz (Thomson publication), 2007 edn.
Derivatives- Valuation & Risk Management - Dubofsky & Miller - (Oxford University Press), 2004/05
Options & Futures- Vohra & Bagri - (TMH), 2/e
Financial Derivatives Theory, Concepts and Problems S.L. Gupta Prentice Hall (2007)
Introduction to Derivatives and Risk Management Chance Thomson Learning, 6/e, 2004
Options & Futures Edwards & Ma - (MacGraw Hill), 1/e

Table 1.1 Day-wise Class Session Plan

Session

Contents

Text book

No

Ref.Chapter
Risk Management Introduction, Meaning of Risk, Definition, Types, Process
of risk, Methods and Objectives of Risk Management.
Derivatives: Introduction, Meaning, Definition of various derivatives
instruments, Classification of derivatives markets - Exchange vs OTC markets,,
Uses & Critics of derivatives. Players in the derivatives market.
Futures Market & Contracting:
Introduction, specification of a futures contract, Types of financial futures
contract, Functions of futures market, Futures trading mechanism: Convergence
of futures price to spot price, daily settlement & margins, clearing house,
operations of margin.
Hedging strategies using futures: Introduction, Basic principles, Basis Risk.

1&2

4
5&6

7, 8 & 9

10, 11 &
12

13, 14 &
15
16

Determination of Forward & Futures price: Investment Assets vs.

Consumption Assets, short selling, forward price for an Investment asset, No
Income, Known Income, Known Yield, Futures on commodities. Arbitrager
strategies.
Risk Management using Options:
Introduction, concept of options, types of options, distinction between Options
& Futures contracts, Option valuation, Naked (uncovered) and covered options.
Properties of stock options Factors affecting option prices.
Upper and lower bounds for option prices, put-call parity.
Option Pricing Models:
Introduction, determination of option prices Black & Scholes option pricing,
Binomial
option
pricing
model.
Exercises.
The Greek Letters Delta Hedging, Theta, Gamma, relationship between
Delta, Gama, Theta, Rho & Vega. Cases on Greek letters relating to B & S
Trading strategies involving options:
Basic principles of options trading, Strategies involving a single option and a
stock, Spreads, Combinations - Butterfly, Straddle, Condor, Strip, Straps &
other combinations & pay offs.
Commodity Exchange Introduction, Overview of Futures commodity market
in India, Commodity exchanges, Role of FMC.

3
5

8&9

11 & 13

17

10
Presentation

Pedagogy:
1.
2.
3.
4.
5.
6.
Note:
1.

Lecture and Discussion

Classroom Case discussion and analysis
Presentation by students
Class exercises and Tests
Surprise Test and Quiz
Individual / Group Assignments
The Course Instructor has not captured presentations topics, students groups, and the dates of student
presentations during the course. These were verbally announced before the class. Students were
evaluated and graded on their performance as part of the DTA component.

EVALUATION SCHEME:
Your performance in the course will be evaluated as follows:
I. Mid-Term
1. Group Presentation
2. Assignment / Surprise test / Quiz
3. Attendance
4. Test 1
II. End Term Exam
Total

Marks
10
20
10
20

60
40
100

Grading system: Please refer to PGP student handbook