Financial Derivatives syllabus

Financial Derivatives

• 1 Introduction (5 LHs)

  • Derivative markets, instruments and core concepts
  • Spot versus derivative markets
  • Roles, criticisms, misuse and ethics
  • Derivative-market careers
• 2 Structure of Options Markets (7 LHs)

  • Options-market development; calls and puts
  • Payoff and profit diagrams
  • OTC and exchange-listed options
  • Trading mechanisms, quotes, types and transaction costs
• 3 Valuation of Option (8 LHs)

  • Call and put pricing principles
  • One-period binomial valuation, hedge portfolios and arbitrage
  • Two-period binomial valuation, American options and dividends
  • Black-Scholes-Merton with and without dividends
  • Effects of variables on option value
• 4 Option Strategies (8 LHs)

  • Covered calls and protective puts
  • Straddles, strangles, strips and straps
  • Bull, bear and butterfly spreads
  • Synthetic instruments
• 5 Structure of Future Market (5 LHs)

  • Forward and futures market development
  • OTC forwards and organized futures
  • Traders, trading mechanisms, contracts and costs
  • Nepal derivatives-market development, regulation and issues
• 6 Pricing and Valuation of Forward and Future (5 LHs)

  • Cost-of-carry principle
  • Pricing on investments, indices, currencies and commodities
  • Carry arbitrage for mispricing
• 7 Swaps (5 LHs)

  • Swap concept, nature and features
  • Interest-rate, currency and equity swap pricing and valuation
• 8 Financial Risk Management (5 LHs)

  • Risk-management rationale
  • Equity and currency hedging with options
  • Forwards, futures, basis risk and imperfect hedges
  • Interest-rate, currency and portfolio risk with swaps