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.
Derivative Securities (FIN 403)
| Programs\Type | Required | Core Elective | Area Elective |
| Finance Minor | * | ||
| Industrial Engineering | * | ||
| Industrial Engineering (Previous Name: Manufacturing Systems Engineering) | * | ||
| Management | * | ||
| Management | * |
CONTENT
OBJECTIVE
To introduce derivative securities (Forward contracts, futures, options, and swaps) emphasizing their use as risk-transferring/ minimizing devices.
LEARNING OUTCOMES
- 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.
PROGRAMME OUTCOMES
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, fundamental engineering, computational methods 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 while considering the UN Sustainable Development Goals; choose and apply suitable analysis, design, estimation/prediction 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; 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 creative current and future requirements.
5. Use research methods, including conducting literature reviews, designing experiments, performing experiments, collecting data, analyzing results, and interpreting results, to investigate complex engineering problems or discipline-specific research topics.
6. Possess knowledge of business practices such as project management, risk management, change management, and economic feasibility analysis; awareness on entrepreneurship and innovation.
7. Possess knowledge of impact of engineering solutions on society, health and safety, the economy, sustainability, and the environment within the framework of the UN Sustainable Development Goals; awareness on legal outcomes of engineering solutions; awareness of acting impartially and inclusively without any form of discrimination; act in accordance with ethical principles, possessing knowledge of professional and ethical responsibilities.
8. Communicate effectively, both orally and in writing, on technical subjects, considering the diverse characteristics of the target audience (such as education, language, and profession).
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
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ASSESSMENT METHODS and CRITERIA
| Percentage (%) | |
| Final | 35 |
| Midterm | 25 |
| Participation | 15 |
| Other | 25 |
RECOMENDED or REQUIRED READINGS
| Textbook |
"Derivatives Markets, 3rd edition" by Robert L. McDonald, Pearson New International Edition (ISBN: 9781292021256) |