DSIMS/ADMN/FMT/10/V1.

Subject Name Derivatives and Risk Management

Faculty Name Prof. Maneesh Gupta
Semester III
Batch Year 2022 – 2024
Academic Year 2023 – 2024
Specialization Finance

1. COURSE OBJECTIVE AND SCOPE: The markets for these versatile instruments have grown enormously and have
generated a profusion of innovative products and ideas, not to mention periodic crises. Derivatives have become one
of the most important tools of modern finance, from both the academic and the practical standpoint. The objective of
this course is to explore the use of basic types of derivative instruments in the context of financial risk management
by firms and financial institutions. Specifically, the course examines the pricing and use of financial derivatives,
including options, forwards, futures, swaps and credit derivatives in risk management. The course will extensively
focus on the theory and applications of risk management tools. Students are expected to develop competencies in
pricing, hedging and trading strategies. However, the subject matter requires relatively greater use of quantitative
methods and theoretical reasoning than many other courses, and most students will find it quite challenging.

2. PROGRAM OUTCOMES AND COURSE OUTCOMES:

Program Outcomes:

1. Students will be able to define, understand and apply managerial concepts.

2. Students will be able to analyze, evaluate and design solutions for managerial problems with legal, ethical and
economic aspects of business in local and global context.
3. Students will be able to demonstrate and develop effective communication, teamwork and leadership skills.
4. Students will be able to demonstrate research aptitude and ability to acquire new knowledge.
5. Student will be able to demonstrate professional conduct through ethical responsibility and social sensitivity.

Course Outcomes: This course intends to develop the participant’s following abilities:

CO1. To understand the concepts related to derivatives markets and gain in-depth knowledge of functioning of
derivatives markets.
CO2. To learn the derivatives pricing and application of strategies for financial risk management.
CO3. To acquaint learners with the trading, clearing, and settlement mechanism in derivatives markets.

CO Mapping with Assessment Tools

Attendance and Class End-Term

Mid-term
Assignments Participation Project Examination
CO1 √ √ √ √
CO2 √ √ √ √
Weightage 10 10 10 10 60

3. A. REQUIRED TEXT BOOKS: Options, Futures and Other Derivatives

By: John Hull [JH]

B. ADDITIONAL READINGS:
1. Derivatives – Principles and Practice
By: Sundaram and Das [SD]

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2. Applied Derivatives – Options, Futures & Swaps

By: R. J. Rendleman [RR]

3. Swaps and Other Derivatives

Dr. Richard Flavell [RF]

4. EVALUATION COMPONENTS:

Evaluation Components for the Course Score Break-up

Class Participation / Attendance 10
Case Study / Project 10
Assignments 10
Mid-Term 10
End Term Examination (External) 60
Total 100

4. DETAILED SESSION OUTLINE:

Session No-1,2 Contact

Topics covered Review of Finance Basics
Reading Material Handouts in class
Pedagogy Lectures & Discussion
Session No-3,4 Contact
Topics covered Review of Interest rates and forward rates
Reading Material Handouts in class
Pedagogy Lectures & Discussion
Session No-5,6 Contact
Topics covered Introduction to Derivatives
Reading Material SD #1
Additional Reading JH #1,2
Pedagogy Lectures & Discussion
Session No-7,8 Contact
Topics covered Pricing Forwards & Futures – Basic
Reading Material SD #2
Additional Reading JH #3
Pedagogy Lectures & Discussion
Session No-9 Contact
Topics covered Pricing Forwards & Futures – Hedging Applications
Reading Material SD #5, 23
Additional Reading RR #1, 2, 3
Pedagogy Lectures & Discussion
Session No-10,11,12 Contact
Topics covered Options Market
Reading Material SD #7
Pedagogy Lectures & Discussion
Session No-13 No Contact
Topics covered Options – Problem solving session
Reading Material As presented in previous six sessions
Pedagogy Lectures & Discussion
Session No-14 Contact
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Topics covered Mid-Term
Pedagogy Discussion
Session No-15 Contact
Topics covered Option Strategies – Basic
Reading Material SD #8
Additional Reading MM #11 - #22
Pedagogy Lectures & Discussion
Session No-16 Contact
Topics covered Option Strategies – Advanced
Reading Material SD #8
Additional Reading MM #11 - #22
Pedagogy Lectures & Discussion
Session No-17,18, 19 Contact
Topics covered Binomial Option Pricing Model (BOPM)
Reading Material SD #12
Additional Reading JH #13
Pedagogy Lectures & Discussion
Session No-20,21 Contact
Topics covered Black-Scholes Option Pricing Model (BSOPM)
Reading Material SD #14
Additional Reading JH #15
Pedagogy Lectures & Discussion
Session No-22 Contact
Topics covered Options – Problem Solving session
Pedagogy Lectures & Discussion
Session No-23 Contact
Topics covered Option Greeks – Basics
Reading Material SD #17
Additional Reading JH #19
Pedagogy Lectures & Discussion
Session No-24,25 Contact
Topics covered Option Greeks – Advanced
Reading Material SD #17
Additional Reading JH #19
Pedagogy Lectures & Discussion
Session No-26,27 Contact
Topics covered Project presentations
Pedagogy Discussion

5. PROJECT AND OTHER ASSIGNMENT DETAILS:

Case study / Project report must have the following format:

a. Standard Front Cover page: Name of Institute (Top Center), Title of Project (Center), Name, Roll no., Class,
Assignment no., and Date (Bottom Right)
b. Bibliography and References on the last page.
c. Font Times New Roman, Heading 12, Body 11, Single Spacing, Justified.

All assignments must be hand-written. Standard Front Cover to be used as stated above.

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1. Project (give due references of all the material used to prepare the project):

i) Barings Bank + Two trading strategies + VIX

ii) Orange County + Two trading strategies + Value at Risk
iii) LTCM + Two trading strategies + Credit Default Swaps
iv) Metallgesellschaft AG + Two trading strategies + Volatility Smiles
v) Amaranth Advisors LLC + Two trading strategies + ESG Derivatives
vi) Proctor & Gamble + Two trading strategies + Energy Derivatives

Scope:

a. Derivatives debacles (3-4 pages)

i. Explain the derivatives debacle – what happened and all the stakeholders involved.
ii. Explain what went wrong using technical terminology.
iii. How could the losses / problem be avoided?
b. Trading strategy (2-3 pages)
i. Trade setup.
ii. Payoff diagram.
iii. Risk-return profile & Market conditions.
c. Case study (3-4 pages)
i. Explain the concept.
ii. Technical / Mathematical calculations.
iii. Applications.

2. Exam:

The exam is offline.

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