Standardized Outline for Courses

Part A: Basic Details

Name of Course Options and Futures

Dr.Trilochan Tripathy
Course Instructor(s)
[email protected]
(please provide email id)

Academic Associate(s) Ms.Priya Minz

(Please provide email id) "Minz Priya (Ms)" <[email protected]>

Area Finance

Program Business Management (2023-25)

Term Four

Type of Course
Elective
(Core/Elective/Workshop)

Number of Credits Three

Number of Classroom Contact

Thirty
Hours
Course Pre-requisites (if any,
including cut-off grades in specific Financial Management I and II
core courses)
Option, Futures and other Derivatives, 11 edition, John. C, Hall and
Course Textbook
Sankarsana Basu
Course Handout to be Provided
Yes
(Yes/No)
No. of Sessions to be taken by
2/4 (depending on faculty availability)
Guest Faculty
Name of Guest Faculty (if
-will be intimated before the session
identified)

Part B: About the Course

Course Description The course intends to expose the students to the field of derivatives securities with
special focus on Forward, Futures and Option derivatives. First, the course will
introduce the commonly traded derivative instruments and their role in risk
management and institutional structure of the derivative markets on which such
instruments are traded. (ii) Second, there will be discussion on forward and Future
hedging strategies and pricing of Forward and Futures. (iii) Third, Mechanics of option
Strategies, (iv) Option Pricing- Binomial and Black Scholes Model, Option Greeks and
risk management, estimation of Volatility and Correlations will be discussed in detail.
(iv) Fourth, The course will conclude with a discussion on Interest rate Options, basics
of exotic options and real options and discussion on derivative applications in India. A

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 Standardized Outline for Courses

sub-element of the course will examine the use and pricing of interest rate and cross-
currency swaps. Thus the course is broadly segmented into 5 Modules:
- Introduction to Derivatives and Market Characteristics
- Mechanics of Pricing and Hedging Strategies with Forward and Futures
- Mechanics of Pricing and Hedging Strategies with Options
- Option Greeks, Volatility smile, volatility forecast and Risk Management
- Mechanics of Currency and Interest rate Swap
Course Objectives To broad objective of the course is to familiarize the students on the derivative markets
and instruments, understand trading strategies associated with these instruments and
hedging commodity price risk, equity price risk and foreign exchange risk in diverse
business scenarios
- To provide a rigorous understanding of the main types of exchange-traded
options and futures contracts.
- Provide the necessary skills to examine the pay offs associated with forward,
forward rate agreements, futures and options for equity, commodity and FX
- To equip students to take decisions on derivative products pricing and valuation
- To provide ability to formulate strategies using derivative such as forward,
futures and options with a stock or some combinations
- To develop trading strategies to profit from mispriced derivative assets
- To examine the sensitivities of short-term behavior of option Prices linking with
option Greeks and its effect on hedging pay offs
- To motivate the students to understand the basic framework of risk management
in domestic and multinational business
Who is the course - The students, who would pursue carrier in treasury functions, investment banks,
suitable for? (for trading firms, hedge funds and quant modeling, financial analytics and risk
electives only) management roles

Part C: AOL Mapping

Learning Objective Relevance for Course (put a tick)

Decision Making ∕

Quest for Excellence

Sustainability

Global Mindset ∕

Please indicate the rationale for choosing the Response:

specific learning goal(s) for this course To develop financial analytical skills of the students by associating
the derivative tools and techniques with the situation and
interpretation business information and apply in the context of
existing financial theories and heading for appropriate decisions
making. Thus, at the end of this course, students should be:
- able to speak the language of derivative markets and
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Standardized Outline for Courses

instruments
- Formulate and explain the rationale behind the current
methodologies used to price derivatives
- able to apply the theoretical framework and critically
analyze a risk management issues
- Solve risk management and valuation problems in finance
- Price a variety of options using both analytical and
numerical methods
able to design, plan and execute solution for the real life risk
exposure using verities of derivative instruments .

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 Standardized Outline for Courses

Chapters from Pedagogy (Case Studies/in-class

Session
Session Topic Learning Objectives Textbook / Case exercise/questionnaire/present
No(s)
Studies ations)
To motivate the students to understand: Ch. 1 Forwards and Futures" (UV1045)
- Introduce the course options and futures
Overview of - difference between OTC and derivative markets
Derivative - Derivative securities used for hedging tools
1
Market and - Market Characteristics- Forward, Futures and Options
Securities - Market participants in derivative markets
- Reasons for Trading derivative securities and Risk
Management
2 &3 Hedging using To motivate the students to: Ch. 2 & 3 HBS Case; Barrick Gold:
Forward - explain different types of forward contracts, features, Eliminating the Gold Hedging
Contracts settlement procedures and risks associated thereof Strategy [W11036-PDF-ENG]
- FX forwards for hedging strategies and payoffs,
- FX Non-Deliverable Forward compute arbitrage profit taking HBS Case: Voyages Soleil: The
position in forward market Hedging Decision [905N24-
PDF-ENG]
4, 5 & 6 Hedging using To equip students to take decisions on how to: Ch. 3 HBS Case: Tumbling Trade on the
Futures - mechanics of futures market MCX: restoring the Glory of
contracts (A) - margin and its management in futures market Mentha Oil Futures [W27116-
PDF-ENG ]
- deploy futures for hedging strategies and payoffs,
- compute hedge ratio, optimal hedge ratio, tailing a hedge,
rolling a hedge
- deal with equity hedges HBS Case: Jet Blue Cross hedging
- deal with foreign exchange hedges [UV2519-PDF-ENG]
- Trade in futures market and understand the trading outcome
- Risk management at corporate level using futures

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 Standardized Outline for Courses

7&8 Pricing and To enable students to understand: Ch. 5 & 6 An Integrated approach to the
valuation of - Pricing vs. Valuation determination of Forward prices
forward and - Equity Index Futures Pricing [908N02-PDF-ENG ]
futures contract - Bond/ Euro Dollar/Treasury Bill Futures Pricing
- Foreign Currency Futures Pricing
- Futures price and spot price of commodities, cost of carry and
delivery,
- contango, backwardation
9 & 10 Pricing and To enable students to understand: Ch. 15 & 17 HBS Case: MoGen, Inc.
valuation of - basic framework of bionmial model [UV1054-PDF-ENG]
option - estimate call price and put price using binomial trees
contracts using - using DerivaGem
Black Scholes - complexities in increasing steps in binomial tree
and Binomial - factors affecting option prices
Option pricing - Black-Scholes option pricing model: assumptions, framework
Model and mathematics behind
- estimate call option and put option price for equity
- options on stocks paying dividends and dividend yields,
- estimate call option and put option price for FX
- examine the pricing outcomes of call option and put option
-estimate implied and historical volatility & conditional
volatility models (if time permits)
11 &12 Mechanics of To encourage the students to: Ch.10 &11 HBS Case: The Keller’s Fund
Options and its - differentiate option from options from other derivatives
Option Investment Strategies
pay offs - basic features of different options
[295096-PDF-ENG]
- understand option payoffs in equity, commodity, and FX
market context
- Use option payoffs to find (i) bounds on options and put call

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 Standardized Outline for Courses

parity relationship,
- Interesting combinations of options, while understanding the
motivation for investing in them.
13,14 &15 Option Trading To facilitate students to understand: Ch. 12 HBS Case: Principal-Protected
Strategies for - call and put option strategies
Equity-Linked Note [UV7125-
equities and - covered & reverse covered call strategy
Bonds - protective & reverse protective put strategies
PDF-ENG]
- call bull and Put bull spread strategies
- butterfly strategies HBS Case: Risk Management
- long and Short Straddle strategies at Apache [201113-PDF-
- long and Short Strangle strategies ENG]
- married put strategy
- Interest rate hedge
16& 17 Short-term To enable the students to understand: Ch. 19 HBS Case: Option Greeks,
behavior of - necked and covered positions Insider Trading, and the Heinz
option Prices: - a stop loss strategy Acquisition [UV8265-PDF-
Hedging - usage of options Greeks ENG] /
Relationships - Delta Hedging, Theta, Gamma, Vega, Rho
- Deriva Gem software understanding
- Volatility smile and Surface
18& 19 Mechanics and To enable students to: Ch. 7 HBS Case: Premier Foods Plc:
valuation of - Interest rate Swap Interest Rate Swaps [W13462-
Swaps - Interest rate caps and floors PDF-ENG] or
- interest rate Swap usage and valuation HBS: J&L Railroad
- understand currency Swaps, uses and its payoffs [UV0251-PDF-ENG]

20 Credit - Credit Default Swap (CDS), Ch. 25 HBS Case: First American Bank:
Derivatives - Uses CDS Credit Default Swap [203033-
PDF-ENG ] /
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 Standardized Outline for Courses

- Valuation and pay offs of CDS Guest Lecture: Industry Practice

Note: - The course instructor may modify the sequence of topics or coverage based on initial experience and the mid-course review.
For Attendance Norms please refer to section 10 of the Student’s Manual.
For Evaluation and Grading Norms refer to sections 20, 21 and 22 of the Student’s Manual.
For Disciplinary Action refer to sections 26 and 27 of the Student’s Manual.

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