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Derivatives and Risk Management
  • Faculty educated at IIM and Duke University.
  • Faculty has international teaching exposure – US, Singapore and Australia
  • Faculty has 10 years of corporate training experience – major Indian IT companies as well as Multi-national IT companies
  • Faculty has published a number of books on derivatives in both India and Singapore.
  • This program has been offered in some of India’s leading business schools.
  • The program fee includes a comprehensive text book on derivatives.
  • The program includes state of the art movies and EXCEL based exercises to reinforce the concepts.
  • All topics will commence from first principles and no prior knowledge in the area is required except for a basic feel for Financial Management.
  • Ideal platform for people working in the BFSI space in the IT sector or in the Financial Services industry (and those aspiring to do so).
  • The course is a delectable blend of theoretical rigor and practical applications.

Program Duration: 8 days x 4 hours per day

Introduction to Futures (2 Hours)

  • All Cash/Spot versus Forward Contracts
  • Introduction to Options
  • Introduction to Swaps
  • Forward Contracts versus Futures Contracts
  • Standardization and the Role of the Exchange
  • The Clearinghouse
  • Margins and Marking-to-Market
  • Arbitrage
  • Spot-Futures Convergence at Expiration
  • Delivery
  • Trading Volume versus Open Interest
  • Multiple Deliverable Grades and Conversion Factors
  • Profit Profiles
  • Types of Underlying Assets
  • Futures Exchanges
  • Hedgers and Speculators
  • Leverage
  • The Economic Role of Futures and Options
  • Reasons for the Rapid Growth of Derivative Markets

Orders & Exchanges (2 Hours)

  • Market Orders and Limit Orders
  • Marketable Limit Orders
  • Trade Pricing Rules
  • Stop-Loss Orders
  • Stop-Limit Orders
  • Market-if-Touched Orders
  • Equivalence of Limit Orders and Options
  • Validity Conditions
  • Open-Outcry Trading Systems
  • Electronic Trading versus Open-Outcry Trading: Merits and Demerits

Valuation of Futures Contracts (2 Hours)

  • Assumptions
  • Forward Contracts on a Security that pays No Income
  • Repos and Reverse Repos
  • Short-Selling
  • The Value of a Forward Contract
  • Forward Contracts on a Security that pays a Known Income
  • Forward Contracts on a Security that pays a Known Dividend Yield
  • Forward Contracts on Commodities
  • Investment Assets
  • Consumption Assets
  • Calendar Spreads and Arbitrage
  • Net Carry
  • Backwardation and Contango
  • Delivery Options
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    Markets

  • Synthetic Securities
  • Forward Prices versus Futures Prices
  • Stochastic Interest Rates
  • Quasi-Arbitrage
  • Risk and Futures Prices
  • Risks Inherent in Arbitrage

Hedging and Speculation (2 Hours)

  • Selling and Buying Hedges
  • Options and Hedging
  • Futures versus Options
  • Ex-post Regret
  • Cash Versus Delivery Settlement
  • A Perfect Hedge
  • Basis Risk
  • Selecting a Futures Contract
  • A Rolling Hedge
  • The Minimum Variance Hedge Ratio
  • Estimating the Hedge Ratio
  • Tailing a Hedge
  • Hedging Processing Margins
  • Speculation with Futures
  • Speculation with Options
  • Developing Derivative Exchanges

Foreign Exchange Forwards and Futures (3 Hours)

  • Purchase and Sale Transactions
  • The Spot Market
  • The Forward Market
  • The No-Arbitrage Forward Price
  • One-way Arbitrage
  • The Relationship Between Interest Rate Parity and One-way Arbitrage
  • Option Forwards
  • FOREX Futures
  • Hedging an Import Transaction
  • Hedging an Export Transaction
  • Creating Synthetic Investments
  • Borrowing Funds Abroad
  • Currency Futures and Forward in India
  • Modification of Forward Contracts in the Indian Market

Stock and Stock Index Futures (2 Hours)

  • Cash Dividends
  • Stock Dividends
  • Splits and Reverse Splits
  • Pre-emptive Rights
  • Adjustment of Futures Contracts for Corporate Actions
  • Types of Stock Indices
  • Tracking Portfolios
  • Major Market Indices
  • Stock Index Futures
  • Pricing of Stock Index Futures
  • Index Arbitrage and Program Trading
  • Hedging With Index Futures
  • Market Timing with Index Futures
  • Using Index Futures to Change the Beta
  • Stock Picking
  • Portfolio Insurance
  • Index Futures and Volatility

Fundamentals of Options (2 Hours)

  • Options and Stocks: Similarities and Differences
  • Common Terms Associated with Options
  • Exercising Call and Put Options
  • Cash Settlement versus Delivery Settlement
  • Exchange Traded versus OTC Options
  • Moneyness of the Option
  • Contract Specification
  • Choosing Expiration Month
  • Specification of Exercise Prices
  • FLEX Options
  • Assignment of Contracts
  • Contract Value Margining
  • Adjustments for Corporate Actions
  • The Put-Call Ratio

Arbitrage Restrictions (2 Hours)

  • Non-negative Option Premia
  • Properties of American Options
  • Put-Call Parity for European Options
  • Intrinsic Value and Time Value
  • Option Premia at Expiration
  • Upper Bounds for Call Options
  • Lower Bounds for Call Options
  • Upper Bounds for Put Options
  • Lower Bounds for Put Options
  • Early Exercise of American Options
  • Put-Call Parity For American Options

Option Strategies and Profit Diagrams (3 Hours)

  • Long Calls
  • Long Puts
  • Writing Naked Calls
  • Writing Puts
  • Writing Covered Calls
  • Bull Spreads
  • Bear Spreads
  • The Convexity Property
  • Butterfly Spreads
  • The Condor
  • Straddles
  • Strangles
  • Strips
  • Straps
  • Box Spreads

Valuation of Options (3 Hours)

  • Relevant Variables for Option Pricing
  • The Binomial Model
  • Pseudo Probabilities and Risk Neutrality
  • Replicating Portfolios
  • Extension to the Multi-period Case
  • Binomial Pricing for European Puts
  • Valuing European Calls on Dividend Paying Stocks
  • Valuing American Calls on Dividend Paying Stocks
  • Rationale for Early Exercise
  • The Breakdown of the Self-Financing Property
  • European versus American Puts
  • The Black-Scholes Model
  • Estimating Volatility from Historical Data
  • The Black-Scholes pde
  • Risk Neutral Valuation
  • Put-Call Parity
  • Implied Volatility
  • European Options on Dividend Paying Stocks
  • Using the Binomial Model in Practice
  • An Introduction to the Greeks

The Indian Derivatives Market (2 Hours)

  • Revival of Derivatives Trading in India
  • Equity and Index Derivatives
  • Clearing and Settlement
  • Margining
  • Risk Management

Swaps (2 Hours)

  • Interest Rate Swaps
  • Market Terminology
  • Futures and Options versus Swaps
  • Valuing an Interest Rate Swap
  • Terminating a Swap
  • Equivalence with FRAs
  • Currency Swaps
  • Inherent Risks
  • Valuation of Currency Swaps
  • Swaptions

Movies (3 Hours)

  • How Wall Street Works
  • How the Bond Market Works
  • 100 Years of the US Economy as Seen Through the Dow Jones Index
  • Dow Jones Futures and Futures Options

Excel Based Exercise (2 Hours)