Derivative Securities (FIN 403)

2021 Fall
Sabancı Business School
Yiğit Atılgan,
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FIN301 IE303
Interactive lecture,Laboratory
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This course serves as a comprehensive introduction to derivative securities. Forward contracts, futures, options, and swaps are the focal point of the course. While the main emphasis is on the use of derivatives as risk-transferring/ minimizing devices, valuations of such contracts are also included. In addition to hedging strategies to be created by any of the derivative securities, various trading strategies involving options (spreads and combinations) are presented. A solid coverage of no arbitrage based pricing is provided as the common underlying premise to valuing derivative securities. Cost-of-carry valuation of forwards and futures, binomial pricing of options, dynamic delta-hedging, the Black-Scholes option pricing formula, basic numerical methods (such as Monte Carlo methods), and swap pricing are introduced.


To introduce derivative securities (Forward contracts, futures, options, and swaps) emphasizing their use as risk-transferring/ minimizing devices.


  • Upon successful completion of the course, the student should be able to: 1. Identify the characteristics and uses of options and apply option-based trading strategies for various purposes including hedging, 3. Identify and analyze the influence of the determinants of the value of options, 2. Use appropriate models for the valuation of options, including Black-Scholes and Binomial option pricing models, 4. Describe the nature of futures, forwards, and swaps, 5. Apply valuation methods for futures, forwards, and swaps, 6. Describe how to manage interest rate and foreign exchange risk via futures, forwards, and swaps, 7. Explain financial engineering and related applications of derivatives.


1. Understand the world, their country, their society, as well as themselves and have awareness of ethical problems, social rights, values and responsibility to the self and to others. 3

2. Understand different disciplines from natural and social sciences to mathematics and art, and develop interdisciplinary approaches in thinking and practice. 1

3. Think critically, follow innovations and developments in science and technology, demonstrate personal and organizational entrepreneurship and engage in life-long learning in various subjects; have the ability to continue to educate him/herself. 1

4. Communicate effectively in Turkish and English by oral, written, graphical and technological means. 1

5. Take individual and team responsibility, function effectively and respectively as an individual and a member or a leader of a team; and have the skills to work effectively in multi-disciplinary teams. 1

1. Possess sufficient knowledge of mathematics, science and program-specific engineering topics; use theoretical and applied knowledge of these areas in complex engineering problems.

2. Identify, define, formulate and solve complex engineering problems; choose and apply suitable analysis and modeling methods for this purpose.

3. Develop, choose and use modern techniques and tools that are needed for analysis and solution of complex problems faced in engineering applications; possess knowledge of standards used in engineering applications; use information technologies effectively.

4. Have the ability to design a complex system, process, instrument or a product under realistic constraints and conditions, with the goal of fulfilling specified needs; apply modern design techniques for this purpose.

5. Design and conduct experiments, collect data, analyze and interpret the results to investigate complex engineering problems or program-specific research areas.

6. Possess knowledge of business practices such as project management, risk management and change management; awareness on innovation; knowledge of sustainable development.

7. Possess knowledge of impact of engineering solutions in a global, economic, environmental, health and societal context; knowledge of contemporary issues; awareness on legal outcomes of engineering solutions; knowledge of behavior according to ethical principles, understanding of professional and ethical responsibility.

8. Have the ability to write effective reports and comprehend written reports, prepare design and production reports, make effective presentations, and give and receive clear and intelligible instructions.

1. Formulate and analyze problems in complex manufacturing and service systems by comprehending and applying the basic tools of industrial engineering such as modeling and optimization, stochastics, statistics.

2. Design and develop appropriate analytical solution strategies for problems in integrated production and service systems involving human capital, materials, information, equipment, and energy.

3. Implement solution strategies on a computer platform for decision-support purposes by employing effective computational and experimental tools.

1. Have an understanding of economics and main functional areas of management

2. Have a basic all-around knowledge in humanities, science, mathematics, and literature

3. Have a basic knowledge of law and ethics, awareness of social and ethical responsibilities

4. Work effectively in teams and environments characterized by people of diverse educational, social and cultural backgrounds

5. Demonstrate proficiency in oral and written communications in English

6. Pursue open minded inquiry and appreciate the importance of research as an input into management practice; thus, a.know how to access, interpret and analyze data and information by using current technologies b.use the results from analyses to make informed decisions

7. Use office softwares for written communication, presentation, and data analysis

8. Demonstrate awareness that business settings present different opportunities and challenges for managers due to environmental/contextual differences that arise in economic, political, cultural, legal-regulatory domains


  Percentage (%)
Final 35
Midterm 25
Participation 15
Other 25



"Derivatives Markets, 3rd edition" by Robert L. McDonald, Pearson New International Edition (ISBN: 9781292021256)