Course Objectives:

The course introduces the valuation of complex securities in a complete markets environment. Students will develop a basic understanding of the principles of the futures.

Course Requirements:

Final examination

Course Contents:

Ch1 Introduction

-Exchange-traded markets

-OTC markets

-Forward contracts

-Futures contracts

-Type of traders

-Hedgers

-Speculators

-Arbitrageurs

Ch2 Mechanics of futures markets

-Specification of a future contract

-Convergence of futures price to spot price

-The operation of margins

-OTC market

-Market quotes

-Delivery

-Forward v.s. futures contracts

Ch3 Hedging strategies using futures

-Arguments for and against hedging

-Basis risk

-Cross hedging

-CAPM and some econometric technique

-Stock index futures

Ch4 Interest rates

-Types of rats

-Measuring interest rates

-Zero rates

-Bond pricing

-Determining Treasury zero rates

-Forward rats

-Forward rate aggrements

Ch5 Determination of forward and futures prices

Credits: 2