Futures and Options 3 s.h.
This course gives an introduction to the financial economics of speculation and hedging by using derivative securities. It analyzes futures, options, and swaps, written on a variety of securities and commodities, such as stocks, stock indices, currencies, interest rate instruments, agricultural products, and precious metals. Given the increased importance of derivatives in today's financial markets, students and investors must understand the characteristics of each derivative security and its potential for speculation and hedging. They should know the price interrelationships between the derivative security and the underlying security. Knowledge, as well as hands-on experience, of institutional aspects of the financial components of trading derivatives in experimental markets, is desirable. Topics include introduction to derivatives, what derivatives are; types of derivatives; usage of derivatives; institutional aspects of futures markets, what futures are; where futures are traded; how futures are traded; pricing futures; the link between a futures price and the underlying spot price; different types of futures; interest rate futures; stock index futures; foreign currency futures; institutional aspects of options markets, what options are; where options are traded; how options are traded; option payoffs and strategies; payoff diagrams for options; popular investment strategies that use options pricing; pricing European options; pricing American options; the Black and Scholes formula; binomial method sensitivities of option prices; importance of parameters like delta and gamma in hedging strategies; different types of options; stock index options; foreign currency options swaps; types of swaps; and pricing of swaps.