FINC 430 Derivative Securities Course Guide

Course Description

This course is designed to expand students' understanding of derivative-related financial instruments (forwards, futures and options) and their use in investment and corporate financial management. The course focuses on the usage of these instruments for speculation and tactical asset allocation strategies. Hedging strategies are also covered. Valuation models are explored and used for the purpose of arbitrage. Prerequisite: FINC 315

Specific, Assessable, Learning Objectives

  1. Identify and distinguish between the various forms of derivatives instruments.
  2. Apply option strategies such as covered calls, spreads and combinations
  3. Apply futures strategies for long and short hedge
  4. Price options and futures
  5. Use options Greeks for financial engineering and risk management purposes.
  6. Use options and futures contracts for tactical portfolio strategies purpose.
  7. Utilize options and futures contracts for portfolio management purpose

Course Outline

During the past three decades, there has been explosive growth in the use of derivative securities such as futures, forwards, swaps and options for managing risk. Such securities are commonly referred to as "derivatives" because their values depend upon the values of other assets. This course presents a conceptual framework for understanding how to price derivatives and design risk management strategies. Topics to be covered:

     1. Introduction to Trading Options.
     2. Option Pricing.
     3. Options Strategies.
     4. Options and Portfolio Strategies.
     5. Option embedded Securities.
     6. Futures Trading.
     7. Futures Pricing.
     8. Perfect and Imperfect Hedges.
     9. Futures in Portfolio Management: Duration and Beta Positioning
    10. Swaps
    11. FRAs 
    12. Special Topic on Derivatives Use and Misuse: Understanding Volatility.
    13. Introduction to Financial Engineering

Required Assessment

This course will contain a portfolio simulation project, which focuses upon the creation and the maintenance of a Hedge Fund. The primary objective will be to use long-term and Intra-day derivatives strategies and track and measure the performance of the portfolio. More specifically, students will familiarize themselves with various statistical tools in their analyses and with primary and secondary data resources available in the Raub Trading Room.

In any semester it is expected that the professors teaching this course will assess at least 75 percent of the learning objectives.

Recommended Assessment Measure

The following assessment measures might be used:

  1. The use of problems, essays or cases on the midterm and final to assess selected learning objectives.
  2. The use of case studies or other practical assignments focused on selected learning objectives.
  3. A complete report on the investment activity for the portfolio simulation project.
  4. An oral presentation of the portfolio simulation project.

Statement of Expectations

Students are expected to take an active role in their learning experience and will be expected to read the assigned material and complete written assignments prior to class.

Students should actively participate in class and attempt to use the language of finance and business as they express their questions and ideas.

Since this course will focus on understanding the material and developing the ability to understand its use, students need to allocate sufficient out-of-class time and effort to prepare for in-class activities.

Course Prerequisite

Since FINC-430, Derivatives Securities is a senior level Finance course designed to refine students understanding of Finance theory and practice, the course requires a background in Finance. Therefore, the prerequisite is FINC-315.

Institutional Mechanism for Providing Feedback for Continuous Quality Improvement

The Department of Finance will annually review the results of assessment from this course and assess their implications for the program students are enrolled in. We will respond in the following manner: seek additional information, and/or alter the course to improve outcomes, and/or discuss deficiencies with other departments providing components of the program that might more directly confront the outcomes observed.