Description of the Course

Derivatives such as futures, forwards, swaps and options are financial contracts that derive their value from some basic underlying events, for example, the value of an asset, the price of a commodity, or the performance of a company, etc.

Derivatives have become a popular investment tool over the last three decades. The notional amount of derivative contracts traded on the OTC market alone has exceeded $590 trillion in the year 2008, according to the Bank of International settlements. Many companies routinely use derivatives to hedge risks and to compensate employees. Moreover, since many financial transactions and investment decisions today contain some derivative-like features, the materials covered in this course should be useful to students planning a career in asset management, corporate finance, investment banking, sales and trading, financial consulting or any other fields that involve financial decision making.

This course is designed to achieve two main objectives. The first objective is to provide students with a framework to understand the fundamental concepts and to develop the necessary skills used in valuing derivative contracts. This will include emphasis on the key concept of “No Arbitrage Principle”, and on the two work horses of the binomial model and the Black-Sholes-Merton model. The second objective is to apply the framework to understand a wide variety of issues related to risk management and investment decisions.

Students who take this class should have already completed Probability and Statistics (Decision 311), and Global Financial Management (Finance 350) offered by the Fuqua School of Business, have completed or be taking simultaneously with this class Investment (Finance 352) offered by Fuqua. Non-Fuqua students must have written permission from the instructor to register for this class. Fuqua students who have not fulfilled the above prerequisite classes must have permission from the instructor to take this course.