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BBF316 - 03 Financial Derivatives

The course aims to help students understand derivatives trading mechanics and improve their ability to analyze and evaluate derivatives market instruments, with topics covering introduction to derivatives, futures and options markets, pricing models, and strategies. The course is a 3 credit hour class in the fourth year of study with prerequisites in financial management, and learning outcomes include discussing derivatives' role in finance and evaluating pricing principles and strategies.

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68 views2 pages

BBF316 - 03 Financial Derivatives

The course aims to help students understand derivatives trading mechanics and improve their ability to analyze and evaluate derivatives market instruments, with topics covering introduction to derivatives, futures and options markets, pricing models, and strategies. The course is a 3 credit hour class in the fourth year of study with prerequisites in financial management, and learning outcomes include discussing derivatives' role in finance and evaluating pricing principles and strategies.

Uploaded by

ldl
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Course Code : BBF316/03

Course Title : Financial Derivatives


Advisory Prerequisite (s) : Introduction to Financial Management
Credit Hours : 3
Duration of course : Year 4, Semester 1

Course Coordinator
Tenku Nur Shahrul Hizam Tenku Izham
MSc (Finance) (UUM), BBA (Hons) Banking & Finance (UUM)

The course aims to facilitate students understanding of the mechanics of derivatives trading.
Besides, the subject is also designed to improve the student’s analytical ability in analysing and
evaluating derivatives market instruments.

Learning Outcomes
CLO 1 Discuss the significance of derivatives transactions on financial system and
operation of the real economy.
CLO 2 Evaluate the theoretical principles to the pricing of specified derivatives
instruments.
CLO 3 Evaluate various strategies which involve the utilization of specified derivatives
instruments in particular under different financial contexts.

Topics
UNIT 1 Introduction of Financial Derivatives
• What is derivatives
• The objects, the player and the markets.
Derivatives Instruments
• Trading methods
• Malaysian derivative contracts and exchange
• Regulations of Derivatives in Malaysia
• Derivatives in practice
Fundamentals of Forward and Futures market
• The concept, mechanics and participants
• The clearing process
• Principles of futures contract pricing
UNIT 2 Commodity Futures
• Crude Palm Oil Futures Contract FCPO
• Pricing FCPO Contracts
• Hedging, arbitraging and speculating with FCPO
Stock Index Futures
• Stock Indexes FKLI and their futures contracts
• Uses of stock index FKLI futures
• Hedging, arbitraging and speculating with stock index FKLI futures 3 1 1
2 0 1 8 Case study / assignment/ presentation
UNIT 3 Interest Rate Futures
• Interest rate futures
• 3-month KLIBOR futures contract
• Hedging and arbitraging with KLIBOR
Swap
• Interest rate swap
• Currency swap
• FRAs
• Credit derivatives
Introduction to Options
• Calls and Puts
• Payoff to investing in Stocks Options
• Expectation and Option Position
• Uses and application
• Option Moneyness
UNIT 4 Option contracts: Specifications and trading
• Trading Options Contracts
• Option Premiums & Underlying Asset Price
• American Style Options & Early Exercise
• Intermediation and Margining
• Contract Specifications
Basic option strategies and payoffs
• Uncovered/Naked Positions
• Hedge Strategies
• Spread Strategies
• Combination Strategies
• Covered Call Strategies
• Strategies by Market Outlook
Option Pricing
• Asset Valuation
• The Binomial Option Pricing Model
• The Black-Scholes Option Pricing Model
UNIT 5 Option Pricing
• Determinants of Option Prices
• Issues in Option Tradings
• Implied Volatility

Main Reference
Bacha, Obiyathulla I., (2016). Financial derivatives: Markets and Applications in Malaysia, 4th
ed., McGraw Hill.
Grima, S. Elefftherios, I.T (2020). Financial Derivatives: A blessing or a curse. Emerald
Publishing Limited

Additional Text:
McDonald, R.L., (2013). Derivative market. 3rd ed., Boston:Pearson
Hull, J. C., (2017). Fundamentals of futures and options markets, 9th ed., New Jersey: Pearson.
Andersen, T. J., (2006). Global derivatives, 1st ed., Malaysia:Prentice Hall
Satyajit Das, (2006). Derivative products and pricing, 3rd ed., Singapore:Wiley

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