Nathan Dong, PhD, CFA 

Department of Finance, Carroll School of Management, Boston College 

Derivatives and Risk Analytics (MFIN2202 / MFIN8860) 

Open to undergrad students (2202) and graudate students (8860)

Course Description 

This course is an introduction to derivative assets such as futures, forwards, swaps, and options, and mortgage and credit derivatives. We will cover the pricing of these derivative assets as well as securities that contain embedded options. We will consider the practical applications of risk management and financial engineering strategies such as static and dynamic hedging in various contexts including equity, commodity, bond, and mortgage-backed markets.

Prerequisites 

• Corporate Finance

• Investment

Course Objectives 

Upon successful completion of this course, students will be able to

• identify and define the major types of derivatives, the participants in the derivative markets, and the uses of derivatives

• understand the basics of futures, swaps and options including the characteristics, their origin, and opening and closing transactions

• understand the use of futures, swaps and options for speculation, hedging, and the generation of income

• understand and create profit & loss diagrams, payoff diagrams and profit & loss tables

• understand and evaluate option combinations and spreads, combined call writing

• understand and apply the binomial options pricing framework to call and put options

• understand and apply the Black-Scholes Option Pricing Model including the input factors, assumptions and important concepts and definitions

• identify and apply the principal option pricing derivatives (the Greeks) including delta, theta, gamma, vega and rho at the security and portfolio level

• understand the fundamentals of the futures market including futures contracts, pricing, valuation methodologies, spreads, and the use of futures in risk management (hedging)

Requirements 

• Attendance and participation

• In-class quizzes

• Homework assignments

• Individual research project

• Mid-term and final exams

Optional Textbooks 

Fundamentals of Futures and Options Markets, by John C. Hull, Pearson-Prentice Hall.

Course Schedule 

1. Introduction and  Future Markets

2. Hedging Strategy using Futures

3. Cross Hedging and Stack & Roll

4. Interest Rates

5. Forward and Future Pricing

6. Forward Rate Agreement

7. Swaps

8. Mid-term exam

9. VaR and Options Market 

10. Stock Options and Trading Strategies

11. Binomial Trees

12. Valuing  Stock Options

13. Greek Letters

14. Final exam