KIMEP University
Bang College of Business
Fall Semester 2013
Course Syllabus for: FIN5210 Financial Derivatives
_______________________________________________________________________________
1.
Basic Information
Course Code and Title:
FIN5210 Financial Derivatives
Meeting Time and Place:
Monday and Wednesday 19:00 – 20:15 in Rm #204/ NAB
Course Credit:
Three (3) credits
Instructor:
Name: Sang Hoon Lee
Office: Room #338/ Dostyk Building
Phone: 270 - 4440 ext. 2058
e-mail: shlee@kimep.kz
2.
Instructor Availability
Office/Advising Hours:
14:30 – 16:00 (Mon & Wed), 17:30 – 19:00 (Tue & Thr)
Additional hours will be available by appointments.
3.
Instructional Resources
Required textbook:
John Hull, Options, Futures, and Other Derivatives, 7th ed. Pearson, 2009
Reference Materials:
John Hull, Fundamentals of Futures and Options Markets, 7th ed. Pearson, 2010
Robert McDonald, Derivatives Markets, 2nd ed. Pearson, 2006
Wall Street Journal, Financial Times, and other financial periodicals
4.
Course Description/ Overview
A derivative is any financial instrument, whose payoffs depend in a direct way on the value of an
underlying asset at a time in the future. Usually, derivatives are contracts to buy or sell the
underlying asset at a future time, with the price, quantity and other specifications defined today. This
course places emphasis on market operations and the valuations of forward, futures, swaps, and
options contracts and their interrelations. Major topics of trading strategies include hedging, arbitrage
and speculation, and of market operations on stock index, interest rate instruments, and foreign
currencies. Binomial and Black-Sholes option pricing models as well as recent innovations in
derivative markets are discussed.
5.
Learning Objectives
At the end of the course, students should be able to do the followings:
Knowledge: Students will have an in-depth understanding of

Various theories on valuations of financial derivatives including forward, futures, swaps,
and options

The relationships and operations of financial derivatives with other financial instruments

The uses and market functions of financial derivatives

Concepts of hedging, arbitrage, and management of financial risks
Skills: Students will learn to

Use various financial functions and models in financial calculations

Use statistical and mathematical concepts in developing derivative strategies

Use option pricing models in pricing and identifying profit opportunities in financial
instruments
Application abilities: Students will be able to

Formulate hedging, arbitrage, and speculative strategies with derivatives

Apply derivative pricing models to evaluate performances of financial assets and positions

Compare relative performances of various financial instruments and investment strategies

Evaluate the effects of derivative regulations and assess market (in)efficiencies
Values and Attitudes: Students will be able to
6.

Understand the risks of the misuse and/or abuse of financial derivatives

Understand market failures caused by excessive risk-taking with financial derivatives

Understand the importance of appropriate disclosure of risks in the financial derivatives

Understand adverse selection and moral hazard problems in the financial markets
Teaching Methodology
In a typical session, the instructor provides lectures on major issues and theories followed by
discussions of cases, examples, and exercises. Students are expected to read lecture notes and chapter
materials ahead of time. The Power-Point lecture notes slides are available in the L-Drive and the
reading materials in the textbook are assigned before the class. Problem solving and case analysis are
other frequently used teaching methodologies to improve students’ understanding of complex
materials.
7.
Assessment Scheme
Continuous Assessment:

Quizzes: 2 times, 5 points each, a total of 10 points (10%)

Mid-term exams: 2 times, 20 points each, a total of 40 points (40%)
60%

Class attendance and participation: a total of 10 points (10%)
Final Assessment:
40%

In-class final exam during final exam period, 20 points (20%)

Term paper on issues regarding financial derivatives, 20 points (20%)
Assessment Tools
Frequency
Weights
Total
weights
Quizzes*
2 times
5%
10%
Mid-term Exam
2 times
20%
40%
Attendance
15 weeks
0.67%
10%
Term paper
1 submission
20%
20%
15 hours total
In-class Final Exam*
1 time
20%
20%
15 hours total
Continuing
Assessment
(60%)
Final
Assessment
(40%)
Required Self-study
Hours
4 hours per quiz, 8 hours
total
10 hours per exam, 20
hours total
For each week, students
are required to have 3
hours of self study, total
39 hours
Lectures 45 hours
100%
Total 142 hours
*No make-ups are allowed for any missed quizzes and the final exam. Only pre-excused cases
are considered for make-up or applying alternative evaluation methods on the Mid-term exam.
8.
Grading Scale
Letter grades for the course will follow the same standards as specified in the 2010-2011 Catalog.
See the following table for grading scale:
Grade quality
A+
A
AB+
B
BC+
C
CD+
D
DF
Numerical scale
Or percentile
90 - 100
85 - 89
80 - 84
77 - 79
73 - 76
70 - 72
67 - 69
63 - 66
60 - 62
57 - 59
53 - 56
50 - 52
Below 50
9. Course Policies and Instructor’s Expectations of Students
The instructor has the following course policies and expectations:

Students should exhibit willingness to learn and commitment to participate class
discussions on related topics and current financial issues.

Students should be open-minded as well as critically thinking – No stereotyped opinion or
biased perception on certain financial policies or markets are allowed. Students should
respect unique financial and economic circumstances originated from different historical
backgrounds of countries. However, at the same time, students should critically think by
asking “why so?” and “so what?” to improve understanding of the market operations and
draw ideas of promoting the efficiency of financial markets.

Students should be able to demonstrate the abilities to grasp big pictures and identify flows
and frames of ideas on financial market trend, technology development, instruments and
issues.

Students should respect class disciplines. Students are required to attend and to be on time
for all classes. Mobile phones and other electronic devices that could disrupt class must be
turned off upon entering the classroom. Academic dishonesty is considered a serious
offense and is forbidden.

Assumptions, both explicit and implicit, are widely used in financial theories, cases,
examples and exam questions for learning purpose. Students should be prepared to accept
these assumptions although debates within reasonable limits can be allowed.
10. Period-by-period Schedule (Tentative)
Week
Contents and Assignments
Chapter(s)
Estimated time for
Self-study
1
Introduction to Financial Derivatives, Key terms and definition, Course
guidelines
Chapter 1
3
2
Mechanics of Futures Markets, Contract specifications, Settlement and
Margin Operation
Chapter 2
3
3
Hedging Strategies using Futures, Basis risk, Hedge Ratio, Rolling
hedging, Stock index futures operation
Quiz 1
Interest rate basics, Zero rates, Implied forward rates, Forward rate
agreements
Chapter 3
3
Chapter 4
4+3
Chapter 5
3
Chapters 1 - 5
10
Chapter 6
3
Chapter 7
3
Chapter 8
3
Chapter 9
3
Chapter 10
3
4
5
6
7
8
9
10
11
Forward and Futures, Arbitrage conditions, Valuing forward contracts
Review and Mid-term Exam I
Interest Rate Futures, Quotations, Eurodollar and T-Bill futures, T-bond
futures, Hedging, Arbitrage, Speculation strategies
Swaps, Comparative advantage argument, LIBOR/Swap zero rates,
Valuation of swaps
Mechanics of Options Markets, Terms and Definitions, Option
positions
Properties of Stock Options, Put-call parity, Option price ranges, Effect
of benefits and dividends
Options Trading Strategies, Straddle, Strangle, Strap, Strip, Spread
Remarks
5% of Grade
20% of Grade
12
Binomial Trees, Binomial option pricing model, European vs.
American options
Chapter 11
3
13
Quiz 2
Black-Scholes Option Pricing Model, Volatility, Implied volatility
Chapters 13
4+3
14
The Greek Letters, Delta hedging, Theta, Gamma, Vega, Rho, Portfolio
insurance
Chapter 17
3
15
Review and Mid-term Exam 2
Chapters 6 – 11, 13 & 17
10
20% of Grade
45
10% of Grade
112
60% of Grade
In-class Final Exam
15
20% of Grade
Term paper submission at the end of the semester
15
20% of Grade
Total Final assessment
30
40% of Grade
Total
142
100%
1-15
Attendance and Participation
1-15 Total continuing assessment
5% of Grade
11. Course Objectives and Their Assessment
Learning Outcomes
Operations and Pricing of Financial Futures
How they will be taught
In-depth discussions on futures
markets, mechanics of
operations, and functions of
various participants using
textbook, reference materials,
and lecture notes
How to assess
Homework, quiz, exams, inclass participation and
discussions
Hedging, Arbitrage, and Speculative
Strategies with Financial Futures
Analysis of hedging, arbitrage,
and speculative strategies using
lectures, graphical presentations,
in-class exercises, and problem
solving
Homework, quiz, exams, inclass participation and
discussions
Operation and Pricing of Swaps
In-depth discussions on swap
markets, mechanics of
operations, and functions of
various participants using
textbook, reference materials,
and lecture notes
Homework, quiz, exams, inclass participation and
discussions
Strategies using Interest and Currency
Swaps
Analysis of interest swap and
currency swap, various risk
management strategies, swap
pricing using graphical
presentations, in-class exercises,
and problem solving
Homework, quiz, exams, inclass participation and
discussions
Operations and Pricing of Financial Options
In-depth discussions on binomial
and Black-Sholes option pricing
models, mechanics of option
market operations, and functions
of various participants using
textbook, reference materials,
and lecture notes
Homework, quiz, exams, inclass participation and
discussions
Option Strategies
Analysis of various option
strategies and combinations of
strategies using graphical
presentations, in-class exercises,
and problem solving
Homework, quiz, exams, inclass participation and
discussions
Causes and consequences of Financial Crisis
In-depth discussions on the
causes and consequences of
previous financial crises using
the concept of asymmetry of
information in financial market
and the resulting problems such
as adverse selection and moral
hazard to lead financial crises
Student writings, in-class
participation and discussions