R.L.

Shankar

Derivatives and Risk Management

Course Description
Over the past three decades, the market for nancial derivatives has witnessed a phenomenal growth in terms of both turnover and sophistication. This course has been designed to help the student get a rm footing in this highly interesting, albeit challenging, space. To elaborate, the objectives of this course are: a. to provide you with a deeper understanding of derivative securities and their varied applications and b. to help you appreciate derivatives pricing at an intuitive level. I will consciously stay away from deriving mathematical results; hence, knowledge of calculus is not required. However, all participants are expected to have a working knowledge of a spreadsheet program such as MS-Excel.

Textbooks
The required textbook for this course is Fundamentals of Futures and Options Markets (Fifth Edition) by John C Hull. The book covers most of the topics that I plan to discuss in a very approachable manner. A more rigorous treatment can be found in Hulls other popular text, Options, Futures and Other Derivatives.

Grading
The nal grade will be based on two in-term exams (50%) and an end-term exam (50%). All exams will be closed-book; you are however, welcome to bring a one-page cheat sheet.

Course Schedule
Session I Overview of derivatives Introduction to Forwards and Futures Session II Pricing of Forwards and Futures Hedging Strategies Using Futures

R.L.Shankar Session III

Derivatives and Risk Management

In-term Exam I Options: Denitions, Payos and Trading Strategies Session IV Option Pricing: The Basic Concepts Implementing the Binomial Model Session V From Binomial Model to Black Scholes Model Implementing Black Scholes Model Session VI In-term Exam II Exotic Options Session VII Linear Interest Rate Derivatives: FRAs and Swaps Non-Linear Interest Rate Derivatives: Caps, Floors & Swaptions Session VIII Credit Derivatives Securitization Session IX Introduction to Basel Guidelines Value-at-Risk: Concepts and Models Session X Understanding the Role of Derivatives in Recent Financial Crisis Course Review

Contact Information
In case you want to contact me outside class hours, you can either call me at 28303447 or send an e-mail to shankar@ifmr.ac.in.