Derivative Securities

Catalog description

This course introduces the student to the major derivative securities that are the tools in the management of financial risk: futures, forwards, swaps and options. The course will expose students to potential critiques of traditional financial theory based on recent empirical results, including the global financial crisis of 2007 - 2009. While examining the characteristics and pricing of these instruments, students will also explore how corporations utilize these contracts to reduce their financial risk exposure. The course also explores the practical differences between hedging, speculation and arbitrage. The objective of this course is to examine the important financial characteristics of derivative securities such as swaps, forward, futures, and options contracts and their roles in managing individual and corporate financial risk. Students will apply these concepts in an effort to integrate a comprehensive risk management approach. Among the topics explored for each of these securities are the history and evolution of formalized exchanges, the mechanics of each contract, price relationships, and the theory and practice of hedging. Basic valuation concepts as well as applications and strategies will be emphasized, as well as extensions based on recent innovations in financial engineering and the financial literature.