Financial derivatives
Release Date: 2017-09-21Basic Information
1.Course Type: Professional elective course
2.Class Hours: 36
3.Credits: 2
4.Suitable for: Graduated Students of Finance
Course Introduction
The financial derivatives are tools used to solve financial problems such as investment, financing, arbitrage and risk management. This course introduces the basic principles, risk characteristics, product properties and practical application of financial derivatives. The main contents includes four parts: the first part is the forward type derivatives, the status of the two sides，the contract price, financial transaction amount of the underlying asset; the second part is the futures derivatives, which is part of the forward contract standardization , the market for auction formation of futures trading; the third part: exchange class derivatives, this part is the comparative advantage principle of swap contracts with longer timeframe, including interest rate and currency swaps; the fourth part is the option of derivatives, the status of the two sides in this part of the main transaction is not equal, designed according to the provisions of the contract, where the buyer has the right to buy or sell a certain amount of the underlying asset.
Course Objectives
By learning to enable students to systematically understand the basic theory and basic knowledge of derivative financial instruments, master the use of derivative financial instruments, basic skills and methods, cultivate and improve the ability of students in application of financial derivative tools to resolve financial problems. After graduation, students can adapt to the needs of work and in the financial industry. Through the course of teaching, the students achieve:
1 focus on the principle of derivative financial instruments and their application skills, to help students understand the pricing theory of derivatives.
2 focus on the localization of derivative financial instruments. the use of domestic real cases of derivative financial instruments in analysis, cultivate the students use of derivative financial instruments to solve the problem of China
3. Through the use of case analysis students acquire the knowledge of derivative financial tools and learn to use derivative financial instruments as well as basic principles and methods to solve practical problems, through the analysis of China's financial sector in everyday operation of the case and the cultivation of students' practical ability.
Outline of Course Content
Chapter 1 Introduction to derivative financial instruments
Overall Objective:
1. Understand the definition, characteristics and functions of the derivative financial instruments.
2. Master the contents, characteristics and differences of the basic derivative financial instruments of the forward, futures, options and swaps.
3. Master the types and differences of the derivatives market
Contents:
1. Definition of derivative financial instruments.
2. Characteristics of derivative financial instruments.
3. Types of derivative financial instruments.
4. Derivative financial instruments market.
Chapter 2 Forward contract
Overall Objective:
1. Understand the concept, characteristics and types of forward contracts.
2. Master forward foreign exchange contracts, forward rate agreements and the characteristics of the foreign exchange comprehensive agreement, profit and loss calculation method.
3. Master the application of forward contracts in practice.
Contents:
1. Overview of forward contracts.
2. Forward foreign exchange contracts.
3. Forward rate agreement.
4. Forward foreign exchange comprehensive agreement.
Chapter 3 Futures market and Futures Hedging
Overall Objective:
1. Understand the main contents of the futures contract and trading mechanism.
2. Proficiency in futures margin trading rules, futures trading profit and loss calculation principles.
3. Familiar with the principle of futures hedging.
Contents:
1. Overview of futures market.
2. Futures hedging.
3. Optimal hedge ratio.
Chapter 4 Forward and futures price determination
Overall Objective:
1. Master the pricing of forward and futures.
2. Master no arbitrage equilibrium analysis method.
3. Use the principle of no arbitrage in practice without risk arbitrage.
Contents:
1. Prepare knowledge.
2. Forward and futures pricing model.
3. Forward and futures arbitrage.
Chapter 5 Interest rate futures
Overall Objective:
1. Understand and master the basic knowledge of fixed income securities.
2. Master interest rate futures pricing method.
3. Can use interest rate futures for risk management.
Contents:
1. Fixed income securities.
2. Medium term bond futures.
3. Short term treasury futures.
4. European futures.
5. Duration hedging based on.
Chapter 6 Exchange
Overall Objective:
1. Grasp the concept of exchange.
2. Master the exchange mechanism and principle.
3. Understand the comparative advantage of exchange.
4. Gain Familiarity with the pricing method of exchange.
Contents:
1. Exchange of production and development.
2. Interest rate swap.
3. Currency swap.
4. Swaps applied to interest rate risk management.
Chapter 7 Options market
Overall Objective:
1. Grasp the basic concepts of options.
2. Understand the connection and difference between options and other derivatives.
3. Master option trading mechanisms.
Contents:
1. Options overview.
2. Comparison between financial options and similar financial instruments.
3. Synthesis of options.
4. Option trading mechanism.
5. Legal rules and regulations for option trading.
Chapter 8 Option price property
Overall Objective:
1. Master the factors that affect the option price.
2. Master how to determine the price range of options.
3. Master option parity theorem.
4. Master American option price features.
Contents:
1. Composition of option price.
2. Factors influencing the price of option.
3. Profit and loss of option position.
4. Upper and lower bounds on the price of option.
5. American option pricing.
6. Option price curve.
7. Option price parity theory.
Chapter 9 Option trading strategy
Overall Objective:
1. Figure profit and loss on the basis of the option position.
2. Proficiency in the combination and decomposition of options.
3. Knowing the no risk combination of structural options, and arbitrage.
Contents:
1. Combination of options and assets.
2. Spread combination.
3. Phase difference combination.
4. Diagonal combination.
5. Options.
Chapter 10 Two fork tree pricing model
Overall Objective:
1. Master no arbitrage pricing ideas.
2. Understand the two fork tree pricing method and formula.
3. Understand the risk neutral pricing theory.
Contents:
1. Two pricing model of the 1 one fork tree.
2. Risk neutral pricing principle.
3. Two multi period three fork tree model.
4. Pricing method of American options two fork tree.
Chapter 11 B-S option pricing model
Overall Objective:
1. Master the conditions of B-S option pricing model.
2. Master B-S option pricing formula.
Contents:
1. conditions of B-S option pricing model.
2. B-S option pricing formula.
3. B-S option pricing formula derivation.
4. B-S option pricing formula application.
Chapter 12 Exotic options
Overall Objective:
1. Master the definition and characteristics of exotic options.
2. Master exotic options.
3. Maste exotic options pricing method.
Contents:
1. Non-standard options.
2. exotic options.
3. Program for the pricing of exotic options.
Chapter 13 Credit derivatives
Overall Objective:
1. Master the concept and the basic construction principles of the credit derivatives.
2. Understand the basic trading mechanism of credit derivatives.
3. Understand the valuation method of credit derivatives.
Contents:
1. The concept and the basic construction principle of several kinds of credit derivatives.
2. Basic trading mechanism of credit derivatives.
3. Valuation methods for credit derivatives.
Class Hours Distribution
Week 1 Chapter 1
Week 2 Chapter 2
Week 3 Chapter3
Week 4 Chapter3
Week 5 Chapter4
Week 6 Chapter5
Week 7 Chapter6
Week 8 Chapter6
Week 9 Chapter7
Week 10 Chapter8
Week 11 Chapter8
Week 12 Chapter9
Week 13 Chapter9
Week 14 Chapter10
Week 15 Chapter11
Week 16 Chapter12
Week 17 Chapter13
Week 18 Examination
The total course hour is 36 (45 minutes each class hour), which will be evenly distributed in 18weeks, that is every week will have 2 course hours.
Text book:
1.Teaching Material
[1] Wang Jinzhong. Derivative financial instrument [M]. Beijing: Renmin University of China press, 2014.
2.Other Materials
[1] Hull John. Beijing: Mechanical Industry Press, 2012.