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FIN4224

This document provides information on the FIN4224 Introduction to Financial Derivatives course. The course introduces three main classes of derivative instruments: forwards/futures, options, and swaps. Students will learn pricing and valuation models for these instruments. The major objective is for students to develop problem solving and analytical skills to manage risks related to finance. By the end of the course students should be able to construct hedging and trading strategies using derivatives and evaluate hedged investment performance. Assessment is based on two midterm exams and a final exam.

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85 views2 pages

FIN4224

This document provides information on the FIN4224 Introduction to Financial Derivatives course. The course introduces three main classes of derivative instruments: forwards/futures, options, and swaps. Students will learn pricing and valuation models for these instruments. The major objective is for students to develop problem solving and analytical skills to manage risks related to finance. By the end of the course students should be able to construct hedging and trading strategies using derivatives and evaluate hedged investment performance. Assessment is based on two midterm exams and a final exam.

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FIN4224 Introduction to Financial Derivatives

Code
FIN4224
Title
Introduction to Financial Derivatives
Prerequisites
FIN 3101 Financial Institutions and Markets or FIN 3121 Principles of Finance
Credits
3
Description
The course introduces three general classes of derivative instruments: forwards/futures, options, and swaps. Within each class, students will
learn specific derivative products such as commodity, index and interest rate forwards/futures, equity/index options, currency and interest rate
swaps etc. The major arbitrage, trading and hedging techniques are introduced throughout the course for each type of the derivative
instrument. Students will also learn derivatives’ pricing and valuation models using conceptual problems and practical assignments. Students
will also learn about the Associate PRM and CFA certificate programs, and will review the derivatives topics which are covered by these
programs. In addition, students will be introduced with Stock Track program.
Objectives
The major objective of the course is to develop problem solving, analytical and critical thinking abilities of students in the changeable financial
and economic environment. Students will learn about the concept of risk management and use of derivatives to reduce potential risks related to
finance activities. At the end of the course, students should be able to explore and construct arbitrage, trading and hedging strategies. They will
also learn how to evaluate the performance of their hedged investments relative to the unhedged positions arguing for or against hedging. The
course is supplemented by real cases which happened in past with active use of derivatives.
Outcomes
Knowledge Distinguish and discuss the major types of derivative instruments ﴾forwards, futures, options, swaps﴿; Understand the mechanics of
futures, option and swap markets; Understand the pricing mechanism of different derivatives products; Understand the nature of swap
products; distinguish between different types of swaps; Learn about past financial disasters ﴾derivatives related﴿. Skills Determine Futures,
Forwards prices for different types of instruments; Be able to construct the hedging strategies with forwards, futures; Determine option prices
with Binominal and Black Sholes models; Estimate the value of interest rate and foreign exchange swaps; Be able to construct hedging strategies
with swaps Application Apply the mechanics of Futures and Options markets via Stock track portfolio simulation; Apply the hedging techniques
with derivatives using Stock track portfolio simulation; Using of Excel for pricing options; Construction of Excel tables and writing of transaction
reports. Values and attitudes: KIMEP Core Values; Academic honesty; Respect for peers and instructors.
Assessment
60 % ‐first and second assessments
40 % ‐final assessment
Tentative course outline
Week1
"Course syllabus presentation Introduction to financial derivatives"
Week2
Mechanics of Futures and Forward Markets
Week3
Tutorial – Chapters 1 and 2
Week4
Determination of Forward and Futures Prices
Week5
Tutorial – Chapter 5
Week6
"Hedging strategies using Futures; Quiz 1 – Chapters 1, 2 and 5"
Week7
"Hedging strategies using Futures; Interest Rates"
Week8
"Tutorial – Chapters 3 and 4 Interest rate Futures"
Week9
"Tutorial – Chapter 6 Homework 1 Mechanics of Option Market"

Week10
"Risk Management ﴾Special Part﴿ Tutorial – Chapter 9 Homework 2 Properties of Stock Options"

Week11
"Quiz 2 – Chapters 3, 4, 6, 9 and Risk Management Trading Strategies Involving Options"

Week12
Tutorial – Chapters 10 and 11

Week13
"Options Pricing: Introduction to Binominal Trees; Option Pricing: the Black‐Scholes Model"

Week14
Swaps

Week15
Review before the final assessment

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