Derivatives Instruments

Course overview

This course focuses on the understanding of financial derivative instruments and their applications to corporate strategy and risk management. Throughout the course, there is a clear distinction between using derivatives to appropriately manage risk and using them for speculation. The course emphasizes the perspective that derivative instruments are problem-solving tools that, when used correctly, can create value for financial and non-financial corporations. Students develop the basic mathematical tools necessary for analysis, design, pricing, and implementation of derivatives in a managerial context. The used of forward, future, option, and swap contracts, hedging, arbitrage, and derivatives-pricing models are covered. Through case preparation and discussion, students learn to model and evaluate derivative instruments and risk exposure.

Why study financial derivatives

In recent years there has been considerable growth financial market risk awareness, systemic and non-systemic, as well as recognition of profitable opportunities within those risks during different market condition. Since the world economic crises started in 2008, financial market volatility has gotten to the point in which there is a talk of a new market where investor, hedgers, traders and other market participants must perform under high uncertainty. Financial markets for futures and options have seen a phenomenal growth due to volatility increase across the world. These markets are used by individuals and institutions to meet a variety of objectives (investing, hedging or trading). Most of all, firms and portfolio managers can hedge particular kinds of risk or alter the distribution of the returns in certain ways.
There is a sizeable literature on option and futures valuation. While the theory might at first glance appear advanced and difficult, it is in fact quite accessible. The purpose of the course is to provide the student with the necessary skills to value and to employ options, option-like-instruments, futures and forward. In order to provide a useful treatment of these topics in an environment that is changing rapidly, under a simple and practical approach yet technically deep enough toward the development of applicable technics and analysis by course participants.

Competencies to develop

Institutional Core Competency: Develop the capacity for abstraction, analysis and synthesis.

Professional competence: Manage financial resources within an international environment considering the risk in transactions in derivatives markets and instruments for hedging, investing and trading.

Main objective

This course aims to:
The course is designed to foster an understanding of derivatives primarily forwards, futures, options, swaps. This is achieved through an introduction of the basic techniques of pricing and trading. The course also focuses on the usage of these instruments for speculation and risk management.

Specific Learning Objectives
•    Demonstrate a detailed knowledge of the different types of forwards, futures, swaps, options and other financial derivatives, the principal differences between them, and where and how they are traded.
•    Demonstrate a detailed understanding of the variables (inputs) which influence the value of such derivatives, and the relationship of financial derivatives to their underlying assets.
•    Present the alternative derivatives strategies that would be appropriate for different market circumstances, and describe the advantages and disadvantages of each.
•    Demonstrate the uses of all financial derivatives, either alone, or in conjunction with underlying assets, to realise investment, hedging and trading objectives.