Lovely Professional University,Punjab

Format For Instruction Plan [for Courses with Lectures and Tutorials

Course No Cours Title Course Planner Lectures Tutorial Practical Credits

MGT625 DERIVATIVES AND RISK MANAGEMENT 13596 :: Manoj Kumar 3 1 0 4

Text Book: 1 John C. Hull & Shankar Basu - "Options Futures and Other Derivatives", 7th Edison, Pearson Publications, 2009

Other Specific Book:

2 N. R. Parasuraman - Fundamentals of Financial Derivatives, 2nd Edison, Wiley India, New Delhi, 2009

3 Varma Jayanth - Derivatives and Risk Management, Tata McGraw Hill Publications, New Delhi, 2008

4 Chance, M. Don & Brooks, Robert - "Derivatives and Risk Management Basics" South-Western Cengage learning, New Delhi, 2009

Other Reading

Sr No Jouranls atricles as compulsary readings (specific articles, Complete reference)

5 National Stock Exchange of India Ltd's Derivative Dealer's Module (http://www.nseindia.com/content/ncfm/DMDM.zip)
6 Value at Risk (http://www.hoadley.net/options/develtoolsvar.htm)
7 Duration (http://merage.uci.edu/~jorion/oc/case2.html)
8 Swap (http://www.investopedia.com/articles/optioninvestor/07/swaps.asp)
9 Futures and Spot Price (http://www.cs.sunysb.edu/~skiena/691/lectures/lecture3.pdf)
10 Options Strategies (http://www.optionseducation.org/strategy/strategy_index.jsp)

Relevant Websites

Sr. No. (Web adress) (only if relevant to the courses) Salient Features
11 http://www.rotman.utoronto.ca/~hull/TechnicalNotes/index.htm John C Hull's website for Technical Notes
l
12 http://www.cmegroup.com/tools- Glossary of all the derivative terms
information/lookups/glossary/glossary.html

1 Approved for Spring Session 2010-11

 13 http://www.investopedia.com/articles/economics/09/american- Case 1 - Falling Giant - Case of AIG
investment-group-aig-bailout.asp
14 This note was prepared by Professor of Business Case 2 - Basics of Derivatives
Administration Susan Chaplinksy. Copyright © 1999 by the
University of Virginia Darden School Foundation,
Charlottesville, VA. https://store.darden.virg
15 This technical note was prepared by Professor Robert M. Case 3 - Forwards and Futures
Conroy. Copyright © 2007 by the University of Virginia
Darden School Foundation, Charlottesville, VA
https://store.darden.virginia.edu/
16 http://www.optionseducation.org/resources/literature/files/unde Case 4 - Understanding Profit Loss Graphs
rstanding_profit_loss_graphs.pdf
17 http://www.schroders.com/staticfiles/Schroders/Funds/Schrod Case 5 - Mechanics of Interest Rate Swaps
er%20Matching%20Plus/English/Mechanics-of-Interest-Rate-
Swaps.pdf
18 This case was prepared by Mari Capestany, Professor Robert Case 7 - Enron Corporation's Weather Derivatives (A)
Bruner and Samuel Bodily. Copyright © 2000 by the
University of Virginia Darden School Foundation,
Charlottesville, VA https://store.darden.v
19 This case was prepared by Professor Robert Bruner and Case 8 - Enron Corporation's Weather Derivatives (B)
Samuel Bodily. Copyright © 2000 by the University of
Virginia Darden School Foundation, Charlottesville, VA
https://store.darden.virginia.edu/
20 www.ficcindia.com CASE 9 - Forwards Rate Agreements
21 http://thismatter.com/money/futures/futures.htm Tutorials and Examples
22 http://www.youtube.com/watch?v=4ANPFbW_8BI Cost of carry model
23 http://www.youtube.com/watch?v=Xds9yLsYp_Y Put Call Parity
24 http://www.youtube.com/watch?v=vzRnT-tpfmQ Interests Rate SWAP
25 http://www.youtube.com/watch?v=9EEGC9iJcFQ Stock Options Greeks
26 http://proquest.umi.com/pqdweb? Playing with fire
index=8&did=1769627081&SrchMode=1&sid=2&Fmt=6&VInst
=PROD&VType=PQD&RQT=309&VName=PQD&TS=126295
0777&clientId=129893
27 http://proquest.umi.com/pqdweb? Before that they made a lot of money
index=24&did=1612570081&SrchMode=1&sid=2&Fmt=6&VIn
st=PROD&VType=PQD&RQT=309&VName=PQD&TS=12629
51104&clientId=129893
28 http://proquest.umi.com/pqdweb? Ready For Any Weather
index=18&did=1680595921&SrchMode=1&sid=2&Fmt=6&VIn
st=PROD&VType=PQD&RQT=309&VName=PQD&TS=12629
50815&clientId=129893

2 Approved for Spring Session 2010-11

Detailed Plan For Lectures
Week Number Lecture Number Lecture Topic Chapters/Sections of Homework to be Assigned Pedagogical tool
Textbook/other to students Demonstration/case
reference study/images/anmatio
n ctc. planned

Part 1
Week 1 Lecture 1 Introduction to derivatives and markets ->Reference :2,Ch. 1 Ref - 13
->Reference :1,Ch. 1
Lecture 2 Types and definitions of derivatives (Forwards, ->Reference :1,Ch. 1
Futures, Options, Interests rate, Swaps, CDS, ->Reference :2,Ch. 1
CDOs), Uses of derivatives
Lecture 3 Exchange Traded and OTC derivatives, Derivatives Ref - 5,
Market in India, Regulation Framework and SEBI Ref - 14
guidelines
Week 2 Lecture 4 Introduction to Forwards, Basic Hedging Using ->Reference :1,Ch.1 HomeWork 1 Allocation Ref - 15
Forwards, Forwards Contracts, Limitations of ->Reference :2,Ch. 2
Forwards and Its Markets
Lecture 5 Introduction to Futures, Futures Vs. Forwards, Basic ->Reference :1,Ch. 1 Term Paper 1 Allocation
Risks and Hedging Practices Using Futures ->Reference :2,Ch. 2
->Reference :3,Ch. 2
Lecture 6 Specifications of a Futures Contract, Convergence ->Reference :1,Ch. 2 Ref - 9
of Futures Price to spot price ->Reference :1,Ch. 3
->Reference :2,Ch. 2
->Reference :3,Ch. 2
Week 3 Lecture 7 Daily settlement and Margins, Quotes and Delivery, ->Reference :1,Ch. 2 Ref - 23
cost of carry models ->Reference :2,Ch. 2
->Reference :3,Ch. 2
Lecture 8 Stock Index futures, Commodity Futures and ->Reference :1,Ch. 2 HomeWork 1 Submission
Currency Futures ->Reference :1,Ch. 3
->Reference :2,Ch. 2
Lecture 9 Distinction between futures and forwards contracts, ->Reference :1,Ch. 2
pay-offs, Cash settlement Vs Physical settlement and Ch. 3
->Reference :2,Ch. 2
Week 4 Lecture 10 Pricing Principles, Beta and Optimal Hedge Ratio ->Reference :1,Ch. 5 Ref - 16
->Reference :2,Ch. 2
->Reference :3,Ch. 4

3 Approved for Spring Session 2010-11

 Part 2
Week 4 Lecture 11 Introduction to Options, Option terminology and ->Reference :1,Ch. 8 HomeWork 2 Allocation
Types, Calls and Puts, Index derivatives ->Reference :2,Ch. 3
->Reference :3,Ch. 8
Lecture 12 Calls and Puts, Index derivatives, Naked Options, ->Reference :1,Ch. 8 Ref - 10
Covered Options ->Reference :2,Ch. 3
Week 5 Lecture 13 Calls and Puts payoffs, ->Reference :1,Ch. 8 Ref - 10
->Reference :2,Ch. 3
Lecture 14 Pay offs of Long and Short calls, Pay offs of Long ->Reference :1,Ch. 3 Ref - 10
and Short Puts and Ch. 8
->Reference :2,Ch. 2
Lecture 15 European and American calls and puts, at the ->Reference :1,Ch. 15
money, out of the money, in the money concepts and Ch. 16
->Reference :2,Ch. 3
Week 6 Lecture 16 Option Pricing and Put-Call parity ->Reference :1,Ch. 3 Ref - 24
and Ch. 9
->Reference :2,Ch. 3
Lecture 17 Options Strategies and Pay offs (Spreads, Bull, ->Reference :1,Ch. 10 Ref - 10
Bear, Box, Butterfly, Calender) ->Reference :2,Ch. 3
->Reference :3,Ch. 11
and Ch. 13
Lecture 18 Options Strategies and Pay offs (Spreads, Bull, HomeWork 2 Submission Ref - 10
Bear, Box, Butterfly, Calender)

Week 7 Lecture 19 Options Strategies and Pay offs further strategies ->Reference :1,Ch. 10 Ref - 10
(Straddle, Strips & Straps, and Strangle ) ->Reference :2,Ch. 3
->Reference :3,Ch. 11
and Ch. 13
Lecture 20 Option Strategies Further Modeling Quiz 1

Lecture 21 Revisions

MID-TERM
Part 3
Week 8 Lecture 22 Exotic and Asian Options ->Reference :1,Ch. 24 Ref - 27
->Reference :2,Ch. 8
->Reference :3,Ch. 16

4 Approved for Spring Session 2010-11

Week 8 Lecture 23 Introduction to Swaps, Meanings, Overview, interest ->Reference :1,Ch. 7 HomeWork 3 Allocation Ref - 17
rate swaps, Plain Vanilla ->Reference :2,Ch. 11
->Reference :3,Ch. 18
->Reference :4,Ch. 12
Lecture 24 currency swaps, credit risk, mechanics of swaps ->Reference :1,Ch. 7
->Reference :2,Ch. 11
->Reference :3,Ch. 18
Week 9 Lecture 25 Mechanics of Swaps ->Reference :1,Ch. 7 Ref - 8
->Reference :2,Ch. 11
->Reference :3,Ch. 18
Lecture 26 Introduction to Interest Rate Derivatives & Euro- ->Reference :1,Ch. 7 Ref - 25
Dollar Derivatives ->Reference :2,Ch. 10
->Reference :3,Ch. 18
->Reference :4,Ch. 13
Lecture 27 T-Bill and T-bond Futures, Euro-Dollar Derivatives ->Reference :1,Ch. 5 Ref - 21
Forward Rate Agreement (FRA) ->Reference :2,Ch. 10
->Reference :3,Ch. 2
->Reference :4,Ch. 13
Week 10 Lecture 28 Duration and Convexity ->Reference :1,Ch. 29 HomeWork 3 Submission Ref - 7
->Reference :4,Ch. 11
Lecture 29 Introduction to Credit Derivatives, Types of Credit ->Reference :1,Ch. 23 Ref - 18
Derivatives, Credit Default Swaps ->Reference :2,Ch. 12
->Reference :4,Ch. 15

Part 4
Week 10 Lecture 30 Collateralized Debt obligations, The Indian Scenario ->Reference :1,Ch. 23
->Reference :2,Ch. 12
->Reference :4,Ch. 15
Week 11 Lecture 31 Weather and Energy Derivatives ->Reference :1,Ch. 25 HomeWork 4 Allocation Ref - 19 & Ref - 20
Lecture 32 Credit Risk Mitigation ->Reference :1,Ch. 22
->Reference :4,Ch. 15
Lecture 33 Intro to Risk Management with Derivatives, Hedging ->Reference :1,Ch. 22 Term Paper 1 Submission
Using Greeks, Delta-Gamma Hedging ->Reference :2,Ch. 14
->Reference :3,Ch. 22
->Reference :4,Ch. 15
Week 12 Lecture 34 Greeks Further understanding (Gamma, Theta, ->Reference :1,Ch. 17 Quiz 2 Ref - 26
Vega, Rho) ->Reference :2,Ch. 9
->Reference :3,Ch. 12
->Reference :4,Ch. 5
Lecture 35 Hedging with Futures (Strategies of hedging, ->Reference :1,Ch. 3
speculation and arbitrage) ->Reference :2,Ch. 14
->Reference :4,Ch. 11

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 Week 12 Lecture 36 Hedging with Index Options and futures, VaR and ->Reference :1,Ch. 10 Ref - 6
Historical Simulations and Ch. 20
->Reference :2,Ch. 14
->Reference :4,Ch. 11
->Reference :3,Ch. 22
Week 13 Lecture 37 Risk management structure and policies in India, Ref - 5 & Ref - 29
Introduction to Management of Derivatives
Exposure, nature of derivatives trading
Lecture 38 setting of Risk-vision Reasons for managing Ref - 5
derivatives risk and types of risk in derivative
trading, Futures and options trading system, Basis
of trading
Lecture 39 Revisions

Spill Over
Week 14 Lecture 40 Interest Rate Derivatives & Euro-Dollar Derivatives ->Reference :1,Ch. 7
->Reference :2,Ch. 10
->Reference :3,Ch. 18
->Reference :4,Ch. 14
->Reference :4,Ch. 13
Lecture 41 Duration and Convexity ->Reference :1,Ch. 29
->Reference :4,Ch. 11

Details of homework and case studies

Homework No. Topic of the Homework Nature of homework
(group/individuals/field work
Homework 1 A Note to be prepared on any innovative Product launched by a particular derivative exchange in the Individual
world. List of exchanges will be provided by the faculty.
Homework 2 Excel Modelling of Options Strategies. Any two strategies of Options will be given to to each students for Individual
excel modelling.
Homework 3 Credit Risk Management / SWAP System in Financial Companies. Student to design a swap mechanism, Individual
using excel, between any two companies but through an intermediatery (banker).
Homework 4 Value at Risk Calculation of a Portfolio using analytical process of Delta Gamma and Monte Carlo Group
Simulation. Students to create a portfolio of different derivatives assets and then have to calculate VaR
(daily) of the portfolio. A group of max 5 students will be made.

Scheme for CA:out of 100*

6 Approved for Spring Session 2010-11

 Component Frequency Out Of Each Marks Total Marks
Homework 3 4 15 45
Term Paper 1 25 25
Quiz 2 15 30

Total :- 55 100

* In ENG courses wherever the total exceeds 100, consider x best out of y components of CA, as explained in teacher's guide available on the
UMS

List of suggested topics for term paper[at least 15] (Student to spend about 15 hrs on any one specified term paper)

Sr. No. Topic

1 1. In lieu of the term paper, students may appear for the NCFM's (NSE's) Dervative Market (Dealer) Module Exam at their own costs and can submit the score
for the equivalent marks. For more information and registration for the above mentioned module, please visit NSE India's website (www.nseindia.com)

2. Credit Derivatives in Modern Banking

3. The Use of Financial Derivatives in Managing Corporate Risk.

4. How An Interest Rate Swap Can Be Constructed To Provide A Company With Additional Cash Flow

5. The role of futures contracts in hedging strategies

6. A company's reliance to exclusively to a single commodity derivatives for a it's revenues and assurance on the it's market success

7. Study on the relationship between firm value and exchange rate risk

8. Identifying the elements that are critical to appropriate risk management to a particular industry sector

9. Identifying the elements that are critical to appropriate risk management to a particular firm and its competitors

10. Exchange Rates - Efficient Market Hypothesis and Hedging - whether hedging in the long run is necessary

11. The changes in the prices of aircraft fuel - Fuel Risk Management in Airlines

12. Currency Trades: calls, puts and forwards - finding arbitrage opportunities

13. Use of the Option in Financial risk management - analysis of the hedging strategies in financial risk management

14. Hedging against foreign exchange exposure - hedging techniques for each type of exposure with their advantages and disadvantages

15. Credit Default Swap - liquid types CDS valuation, the motivations to use CDS and pricing

7 Approved for Spring Session 2010-11

Plan for Tutorial: (Please do not use these time slots for syllabus coverage)
Tutorial No. Lecture Topic Type of pedagogical tool(s) planned
(case analysis,problem solving test,role play,business game etc)

Tutorial 1 Case 1 - Falling Giant AIG Discussion Case analysis

Tutorial 2 Numerical Problems in Futures, Forwards, Cost of Problem solving
Carry Models and Case 2 Discussion
Tutorial 3 Pricing Principles, Beta and Optimal Hedge Ratio in Problem solving
Futures and Forwards
Tutorial 4 Modelling of Options Strategies MS Excel Exercise
Tutorial 5 Numerical Problems in Options Pay offs Problem solving
Tutorial 6 Numerical Problems in Options Pay offs Problem solving
Tutorial 7 Case study in Options - Further Concepts Case analysis

After Mid-Term
Tutorial 8 Numerical problems solving in SWAPs Problem solving
Tutorial 9 Numerical problems solving in FRAs Problem solving
Tutorial 10 Credit Default SWAPs and CDOs cases Problem solving
Tutorial 11 Weather and Energy Derivative Enron cases Problem solving
Tutorial 12 Greeks - Problem Solving Problem solving
Tutorial 13 Simulation and VaR modelling on excel Excel Modelling

8 Approved for Spring Session 2010-11