BIRLA INSTITUTE OF TECHNOLOGY AND SCIENCE, PILANI

INSTRUCTION DIVISION
FIRST SEMESTER 2014-15
Course Handout Part II
Date: 01/08/2014
In addition to Part-I (General Handout for all courses appended to the timetable) this portion
gives further specific details regarding the course.
Course No
Course Title
Instructor-in-charge
Instructor

: ECON F354
: Derivatives & Risk Management
: C Hussain Yaganti
:C Hussain Yaganti

1. Scope & Objective:

The objective of the course is to provide knowledge about derivatives and mechanics of
derivative market. The course includes understanding of interest rate, term structure, and time
value of money, pricing of bonds, computation of yield, bond-price volatility, duration, modified
duration and convexity. The course covers option pricing and the variables affecting option
pricing. Students are exposed to various types of risks namely Market Risk, Credit Risk,
Operational Risk, Liquidity risk & Model Risk.
3. Text book:
Varma, Jayanth R. Derivatives & Risk Management. Tata McGraw Hill, 2009
4. Reference books:
R1. Derivatives, by RangarajanSundaram, Sanjiv Das, McGraw Hill, 1st edition
R2. Futures, Options and Other Derivatives by John C Hull, 7th Edition.
R3.Prasanna Chandra - Investment Analysis and Portfolio Management, 3RD edition, 2009, TMH.

5. Course Plan:
Lec.
Learning Objective
no.
1-4
Introduction of
Derivatives

Topics to be covered
Introduction to Derivatives, types, Forwards
& Futures Markets, uses of derivatives. Basic
financial calculations, interest rates: simple,
compounding, nominal and effective.

References
(TB)
Chapter 1&
Class Notes

5-8

Markets, players and instruments

Chapter 2, and
7(TB)

9-20

Brief overview of
Derivative markets and
instruments
Determination of
Forwards, Futures
prices, and Option
prices.

Pricing and cost of carry in case of future

&forwards. Binomial option pricing & Black
Scholes option pricing formula

Chapter 3 and
10(TB) & Class
notes

21 -30

Risks

Types of risks. Risk management

usingforward & futures. Hedging.

Chapter 4 and
5 (TB)& Class
Notes

31 - 42

Introduction to fixed
income securities.
Learning relationship
between bond
Price and yield.

Concept of interest rates, time value of

money, concept of discounting, annuities &
Term-structure. Bonds basics and dynamics
of bond price. Forward rates and its role in
Anticipating term structure. Various
determinants of bond prices: term, yield and
Coupon.

Chapter 11(R3)
&Class notes

5. Evaluation scheme:
EC
Components
No.

Duration

Test-I

1 Hour

Weight
age
(%)
20

Test-II

1 Hour

20

31/10/2014,
4.00--5.00 PM

Assignments/Project/Presentation

20

To be
announced

Comprehensive Exam

40

08/12/2014
FN

3 hrs

Date, Time
& Venue

Nature of
Component

16/9/2014,
4.00--5.00 PM

CB
CB

Partially
OB(OB50%,CB-50%)

6. Chamber Consultation Hour: To be announced in the class.

7.Notice: All notices pertaining to this course shall be displayed on the Economics and Finance
(or) LTC Notice Board.
8. Make-up policy: Make-up will be granted on genuine reason with prior permission
Instructor-In-Charge
ECON F354