IAM520 FINANCIAL DERIVATIVES

Course Objectives

This course is designed to provide a solid foundation in the principles of financial derivatives and risk management.  It attempts to strike a balance between institutional details, theoretical foundations, and practical applications. The course equally emphasizes pricing and investment strategies in order to motivate students to start thinking about risk management in financial markets. Parallel to the already increasing attempts to integrate derivative securities and markets into the Turkish financial system, it is believed that this course will fill a gap and students will be exposed to a rather comprehensive coverage of theory and application in the derivatives area. This course is expected to give the students a “competitive advantage” when they enter the job market since “derivatives” is a “hot topic” nowadays and IAM520 is one of the very few courses offered on this topic in Turkey!

Course Content

This course is designed to provide a solid foundation in the principles of derivatives. It attempts to strike a balance between institutional details, theoretical foundations, and practical applications. Parallel to the already increasing attempts to integrate derivative securities and markets into the Turkish financial system, it is believed that this course will fill a gap in that students will be exposed to a rather comprehensive coverage of theory and application in the derivatives area. Outline of Topics: Introduction to Derivative and Financial Markets. The Structure of Options Markets. Principles of Option Pricing. Option Pricing Models. Basic Option Strategies. Advanced Option Strategies. The Structure of Forward and Futures Markets. Principles of Spot Pricing. Principles of Forward and Futures Pricing. Futures Hedging Strategies. Advanced Futures Strategies. Options on Futures. Foreign Currency Derivatives. Swaps and Other Interest Rate Agreements.

Course Learning Outcomes

1. Understand how the various parts of a business and its environments interact with the financial decisions and risks of the firm

2. Understand the structure of the options markets and the motivation behind creating option contracts

3. Develop skills in option pricing and understand the basic principles that affect the value of an option contract

4. Understand how option contracts can be used to manage financial risk

5. Understand the structure of the futures and forward markets and the motivation behind creating these contracts

6. Develop skills in futures pricing and understand the basic principles that affect the value of a futures contract

7. Understand how futures contracts can be used to manage financial risk

8. Understand the structure of the interest rate derivatives markets and the motivation behind creating such contracts

9. Develop skills in interest rate derivatives pricing and understand the basic principles that affect the value of such contracts

10. Understand how interest rate derivatives can be used to manage financial risk