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  • 1. LOVELY PROFESSIONAL UNIVERSITY INSTRUCTION PLAN (for Lectures) Term: IV Course No. MGT625 Course Title: Derivatives and Risk Management L: 3 T: 1 P: 0 Textbook: 1. Varma, Jayanth, Derivatives and Risk Management, Tata Mc Graw Hill Publications: New Delhi: 2008 Other Specific Books: 2. Gupta, S. L. Financial Derivatives, Prentice Hall Publications, New Delhi: 2008 3. Kolb, Robert W: Understanding Future Markets, Prentice Hall Inc., New Delhi 4. “Indian Stock Market Review,” National Stock Exchange Publications: 2008 5. Apte, P. G. International Financial Management, Prentice Hall Inc., New Delhi 6. Bhalla, V. K., Financial Derivatives, Risk Management, S. Chand and Company Ltd. Other readings: S. No Journal articles as compulsory reading 7 Siems, Thomas, “10 Myths About Financial Derivatives,” http://www.cato.org/pubs/pas/pa-283.html 8 Bose, Suchismita and Bhaumik, Sumon Kumar, “Impact of Derivatives Trading on Emerging Capital Markets: A Note on Expiration Day Effects in India,” http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp863.pdf 9 Srivatava, Pulkit, “Financial and Legal Aspects of Derivatives Trading in India,” http://students.indlaw.com/display.aspx?4269 10 Premya, Samantha and Pradeepta, “Impact of Future Trading,” Journal of Applied Finance, Vol. 13, October 2007 11 Varma, J. L., “Regulatory Framework for Financial Derivatives”, Committee Report; SEBI Publications: 2008 12 Shirur, Shrinivas, “Dilemma of Corporate Action-Bonus Issue v/s Stock Split,” Vikalpa, IIMB, Vol- 33 July-Sept 2008 13 Sarkar, Asani, “Indian Derivative Market,” The Oxford Companion to Economies in India, Oxford University Press, New Delhi: 2006 14 Bagri and Vohra, “Futures and Options: The Indian Scenario,” National Seminar on Derivatives 15 Bansal, S. C., “Financial Derivatives,” National Seminar on Derivatives 16 Jayanth, Rama, “Derivatives in Bull and Bear Markets,” National Seminar on Derivatives Relevant websites: S. No Web address Salient Features 17 http://www.nseindia.com This site gives information on market trends, level of trade, prices etc of derivatives. Apart from this on this website certified modules are also available.
  • 2. 18 http://www.sebi.gov.in FAQs on this site make a very good reading. The site has details of all rules and regulations as applicable to derivatives trading. 19 http://www.moneycontrol.com This site if subscribed to sends alerts on the latest developments in the field of derivatives trading. This site also gives the facility of creating an artificial portfolio online. 20 http://derivativesindia.com This site has all the updated existing information about derivatives products, their types, trading mechanism etc. 21 http://bseindia.com This site has details of prices of various stocks and derivatives products. 22 http://www.cato.org/pubs/pas/pa-283.html Explains the mechanism of trading in derivatives for better understanding of the subject. 23 http://www.margrabe.com/dictionary/derivatives/html An international online dictionary of derivatives 24 http://derivativesindia.com/scripts/glossary/index.articlese- Provides details of contact aeticles specifications Detailed Plan for Lectures Lecture Topic Chapters / Assignment / Pedagogical aid Date No. Sections Task to be Demonstration/ Delivered2 of assigned to case study / Textbook students images/ / Other 3 DoS4 animations etc5. reference1 1 Introduction to Derivatives Ch-1/Ref- 6, Ch-1/Ref- 2, Ref 20, Ref 13 2 Applications and Benefits of Ref 20, Derivatives Ref 15, Ch-1/Ref- 6, Ch 1/Ref 2 3 Types of Derivatives Ref 20, Ref 15, Ch 1/Ref
  • 3. 2 4 Products and Participants Ch-1/Ref Assi 2 gnm ent 1 5 Types of Members Ch-1/Ref 2 6 OTC Derivatives Markets Ch-1/Ref 2, Ref 17 7 Future Markets Ref 14, Ref 10, Ch-2/Ref 1, Ref 3 8 Forward Markets Ref 14, Ref 10, Ch-2/Ref 1 9 Types of Futures Ref 14, Ref 10, Ch-2/Ref 1, Ref-23, Ref 5 10 Pay-off and profit and loss Ref 5 11 Option Trading Ch-2/ Ref 6, Ref 23, Ref 24, Ref 21 12 Types of Options Ch-2/ Ref Assi 6, Ref 23, gnm Ref 24, ent 2 Ref 21 13 Pay-off and profit and loss Ch-2/ Ref Pay-off Charts, 6, Ref 23, Numerical Ref 24, Problems Ref 21 14 Option Pricing Ch 15/Ref 2 15 Index Derivatives Ch 8/Ref 2 16 Use of Futures Ch-5/ Ref 6, Ref 14 17 Use of Options Ch-2/ Ref 6, Ref 23, Ref 24, Ref 21 18 Speculation Ref 1 19 Structure and Policies for Risk Ch-6/ Ref Management 2 20 Derivative Exposure 21 Nature and Types of Exposure Ch 7/Ref
  • 4. 6, 22 Taking a Position Ch 17/Ref Quiz 2, Ref 19 1 23 Risk Vision Ch 7/ Ref Case Study 2 2 24 Managing Risk Ch 7/ Ref Assi 2 gnm ent 3 25 Trading System Ch 16/Ref Dummy 2 Trading 26 Trading Hierarchy Ch 16/Ref 2 27 Market Watch and Inquiry Ref 1, Ref Windows 18 28 Clearing Ref 1, Ref 4, Ref 20 29 Entities, Members and Banks Ref 1 30 Settlement Ref 1, Ref Dummy 20 Trading 31 Settlement of Institutional Ref 1, Ref Assi Dummy Deals 4 gnm Trading ent 4 32 Regulatory Mechanism Ch-6/Ref2 , Ref 20, Ref 18 33 SEBI Guidelines Ref 18 34 L. C. Gupta Committee Report Ref 1 Article Paper 35 J. R. Varma Committee Report Ref 1 Quiz 2 36 Winding Up Additional material for spill over 1 Straddles and Spreads Ref 15 Numerical Problems 2 Advanced Financial Ref 20 Derivatives 3 Beta, Trend Analysis and Ref 3, Technicals Ref 4, Ref 5 4 Derivatives Disasters and Ref 19, Frauds Ref 20, Ref 22, Ref 23 5 FRAs and Swaps Ch 13/ Numerical Ref 2 Problems 6 Trade Cycles and Derivatives Discussio Case Study 3 Markets n on latest and 4 monetary policy Notes: 1. Use S. No of the reading above
  • 5. 2. To be filled in on the date of delivery of lecture by the instructor 3. Put assignment number from Assignment Table (below) against the lecture in which planned to be assigned (by co-ordinator). 4. To be filled in on the date of assignment (by the instructor) 5. Do not write Lecture, OHP, LCD projector etc. Details of Assignments Planned: Assignment Details Nature of Expected outcome No. Assignment 1 Discuss five types of derivatives Research-oriented It will enhance the research not listed or traded on any Indian skills of the students and will stock exchange. acquaint them with the wide diversity of derivatives products. 2 Numerical problems on pay-off Practical This assignment will help the calculations of puts, calls, students to understand the straddles and spreads. mechanism behind investment in derivatives. It will give students the confidence to invest in derivatives. 3 Design a new derivative Practical and The assignment will not only instrument. Design a brief Analytical help the students to develop an regulatory framework for understanding of the current effective trading in the new derivative products, it will instrument. foster their imagination too. To attempt this assignment students have to acquaint themselves with the existing regulatory environment and suggest changes that will enable the introduction of the new product. 4 Calculate the bet a stock (based Practical The students will learn how to on 50 readings collected during keep a track of the market and the term). Also for the same predict future prices based on stock calculate the standard trend analysis. deviation for the spot and the future prices. Study the trends of the stock in both the markets and comment. Term paper to be allotted by lecture no: 5 Due date of term paper:2 wks before the close of term Details of Cases Planned:
  • 6. 1 Shetty, Mayur, “A Hedge With Conceptual The case study explains how an Edge” financial crisis can be averted with planned investments in derivatives. It will enhance the understanding of the student with respect to the benefits India can derive from investment in derivatives. 2 Harlalka, Deepak, “Future With Conceptual The case study explains the a New Option” importance of correct pricing and volumes of new derivative products. The study will enhance the student’s understanding of the regulatory environment surrounding derivatives. 3 It will get worse before it gets Current Affairs The case examines the state of better, India Today, February 2, the economy, the causes of the 2009 slowdown and takes a look at the year ahead. 4 Law, Vivek, “Soft Touch Current Affairs Discusses the highlights of the Kickstart,” Economy credit policy and how it is framed. Details of Quizzes Planned: 1 Basics of Derivative Trading Conceptual Will help in brushing the student’s previous knowledge. 2 Settlement, Pricing and Conceptual Will help in brushing the Regulatory Environment student’s previous knowledge. Scheme of CA: (out of 100) Component Frequency Marks out of 100 Attendance 10 Home work based tests / quizes 02 20 Assignments 04 40 Term paper 01 10 Lab performance (only if there is 02 20 a lab component) Any other : specify List of suggested topics for term paper [at least 15] (Student to spend about 15 hrs on any one specified assignment)
  • 7. S. No Topic
  • 8. 1 Critically analyze the Indian regulator environment of derivative trading and suggest improvements to make trading more efficient. 2 Discuss in detail some of the major myths associated with derivatives trading. 3 Discuss in detail the derivative instruments which become popular in the bear as well as the bull market. 4 Critically analyze the Indian derivatives market. 5 Compare the Indian derivative market with the derivative market of the US (with respect to derivative products, regulatory environment and settlement mechanism). 6 Compare the Indian derivative market with the derivative market of the Japan (with respect to derivative products, regulatory environment and settlement mechanism). 7 Compare the Indian derivative market with the derivative market of the China (with respect to derivative products, regulatory environment and settlement mechanism). 8 Compare the Indian derivative market with the derivative market of the Russia (with respect to derivative products, regulatory environment and settlement mechanism). 9 Compare the Indian derivative market with the derivative market of the Brazil (with respect to derivative products, regulatory environment and settlement mechanism). 10 Assess the impact of globalization on derivative trading in India. Quote examples on how the derivative system of different world economies has affected the Indian derivatives market. 11 Critically analyze the factors which according to you have led to the popularity of derivatives. 12 Which derivative instruments in your opinion are the most suitable for hedging risk in the Indian trading environment? 13 What are the various positions that an investor investing in derivatives should take during the various stages of a trade cycle? 14 How do bank derivative trading operations work? 15 What can be done to eliminate derivatives disasters and frauds? 16 Prepare a list of 20 Non-Indian Future Exchanges and discuss the type of future contracts listed on them. Proposed changes from the standard pedagogy for the course:
  • 9. __________________________________________________ Prepared by (instructional planner: Name, Signature & date) Comments of HOFD (Chief Academic Officer) Signature & Date Comments of Dean of Faculty Signature & Date Report Lectures: - (to be filled by the instructor and submitted at the end of term of HOS through HOD)
  • 10. S. No Innovation introduced [ New pedagogy, new Topic and lecture number where demonstration, case study, teaching aid, etc. introduced NOT part of the instructional Plan General Comments of the Instructor about the suitability of IP Conduct of Tutorials Tutorial Date Topics covered in the Activities (like quiz, case study, doubt No. Tutorial clearing, any other) Syllabus coverage report Syllabus coverage by one week before MTE Satisfactory / Lagging by ___ lectures. Syllabus coverage by two week before ETE Satisfactory / Lagging by ___ lectures. ________________________ ____________________ Signature of Instructors & date Signature of HOD & date

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