FIN 427: Derivative Securities

Textbook Information

  • Required:  ISBN: 978-0136103226, Hull, J.C. Fundamentals of Futures and Options Markets (7th ed.) Pearson.
    Please note: There are newer editions of this text available, however, the 7th edition will suffice for this course.
  • Optional: Bodie, Z., Kane, A., & Marcus, A. Investments: Irwin Mcgraw-Hill.
    Please note: Any edition from the past five years will suffice. You may have this book already if you have taken (or are taking) FIN 420, Investments. This is recommended text, not required.

Published Remarks

  • None

Hardware Requirements

  • Financial calculator: HP-10BII calculator or equivalent (Texas Instruments BA-II Plus). This is recommended, not required.

Software Requirements

  • None

Proctored Exams

  • None

Course Description

Introduction to futures contracts and options, leading to a working understanding of their importance in financial management applications.

Overview

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.  While examining the characteristics and pricing of these instruments, we will also explore how corporations utilize these contracts to reduce their financial risk exposure. The course also explores the 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. 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 You will also be more than qualified to pass the information contained in the Derivatives section of the CFA Level I Exam (approximately 5% of the exam content).

Objectives

When you have successfully completed this course, you will be able to:

  • Explain the basic characteristics of futures, options, and swaps (derivative securities).
  • Describe the structure of global futures, options, and swaps markets.
  • Explain the simple arbitrage relationships that form the basis for all derivatives pricing.
  • Apply valuation models to derivative securities.
  • Utilize computer technology in the evaluation and execution of derivatives strategies.
  • Design derivatives portfolios for risk management in trading and corporate finance.
  • Develop investment strategies and hedge investment portfolios using derivatives.

Course Requirements and Grading

Grade Components Percentage of Grade
Online Discussions (2 total) 5%
Homework (14 total) 28%
Mid Term Exams 1 & 2 (10% Each) 20%
Final Exam 20%
Online Summaries (4 total) 4%
Risk Management Project 5%
Options Strategies Project 1 8%
Options Strategies Project 2 10%
Total 100%