Page 4 - DCOM510_FINANCIAL_DERIVATIVES

SYLLABUS

Financial Derivatives

Objectives: To make students aware of the concept of derivatives as a risk management instrument. The subject will give
students a better understanding of complex financial product used for hedging. This subject will give students a better
understanding of the stock indices around the world.

Sr. No. Topic

1 Introduction to derivatives: Definition, Products, Participants and
functions ,types of members to be included, types of derivatives, Exchange-

traded vs. OTC derivatives markets, Derivatives market at NSE (including
turnover)

2 Introduction to futures: Forward contracts, Limitations of forward markets,
Introduction to futures, Distinction between futures and forwards contracts,

Futures terminology.
3 Introduction to options: Option terminology, Distinction between Futures

and options, Index derivatives. Valuation of options; Binomial Option
Pricing Model; Black-Scholes model for Call Options.
4 Application of Futures: Payoff for derivatives contracts (futures and

options), difference between trading securities and trading futures on

individual securities, Use of Futures (Only simple strategies of hedging,
speculation and arbitrage): Index futures, Stock futures.
5 Application of Options: Use of Options (Only simple strategies of hedging,

speculation and arbitrage) : Index options, Stock options
6 Trading: Futures and options trading system, Entities in the trading

system, Basis of trading, Corporate hierarchy, Order types and
conditions

7 The trader workstation, The market watch window, Inquiry window,
Placing orders on the trading system, Market spread/ combination order

entry, Basket trading
8 Clearing and settlement Marks: Clearing entities, Clearing members,

Clearing banks, Clearing mechanism, Settlement mechanism, Settlement of
futures contracts, Settlement of options contracts, Special facility for

settlement of institutional deals
9 Risk Management Systems (Volatility, types of margins & SPAN),

Adjustments for corporate actions
10
Regulatory framework: Regulation for derivatives trading: L.C Gupta
committee Report &J.R Varma committee report, Securities

Contracts(Regulation) Act, Securities and Exchange Board of India Act,
1992