Unit Code Fin460
Derivatives Securities
Unit Coordinator
Dr. Ikhlaas Gurrib
Department of Finance and Accounting
College of Business Administration
UNIT OUTLINE
Semester 1 2009
INTRODUCTION
“…Whales only get harpooned when they come to the surface, and turtles can only move
forward when they stick their neck out, but investors face risk no matter what they do.’’’
Charles Jaffe
Welcome to Derivatives Securities 460 and the College of Business Administration at
PSU.
Derivatives FIN460 is an advanced unit in Finance. It covers that branch of finance
which deals with in depth structures of financial instruments, pricing and risk
management techniques of such tools, and foundations to equip students to pursue
financial market careers in derivatives.
FIN460 is an important and one of the most challenging unit for those pursuing careers
in international finance. It will help you understand the world in which you live, it will
enable you to be a rigorous and informed investor in today’s ever challenging economy
and it will give you the tools for better informed investment decisions eventually.
Good luck with your studies this semester and I sincerely hope that this subject will
provide you a rewarding perspective into the world of modern finance.
ESSENTIAL ADMINISTRATIVE INFORMATION
Unit Title
Derivatives Securities
Unit Study Package Number
Fin 460
Unit Coordinator
Dr. Ikhlaas Gurrib
Teaching Area
Finance
Credit Hours
3
Mode(s) of study
Internal
Co-, Pre- requisites
Principles of Finance 301 and Principles of Investment 350
Result Type
Grade and Mark
Unit Website
The website for this unit is:
tba
Faculty or School Website
http://www.psu.edu.sa/cba.html
Study Load
2.5 hours per week (normally 2 hours lectures + class activity)
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UNIT COORDINATOR & PRINCIPAL LECTURER
Every unit has a person who is responsible for the overall administration of that unit. This person
is the Unit Coordinator. For this unit your Unit Coordinator will also be your Principal Lecturer.
This is the staff member that will assist you with your learning in this unit. He will also be
responsible for overseeing the marking of assessments and providing feedback in relation to your
progress.
Their contact details are below:
Unit Coordinator:
A/Prof Muhammad Ikhlaas Gurrib
Email:
mgurrib@psu.edu.sa
Phone:
01 494 8977
Building:
CBA
Room:
Level 2 CBA E345
Contact Hours:
UT 2.30-3.45pm E 240
Consultation
Hours
Tba
In case you need consultation, please come and see me in my office during consultation hours.
Unless for urgent matters, it is advisable you email me first at least 24 hours prior to your visit.
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UNIT SYLLABUS
LEARNING OUTCOMES
On successful completion of this unit you will be able to:
1. Know the terminology of derivative securities.
2. Identify the key characteristics of different types of derivative securities.
3. Explain the main uses of derivative securities.
4. Understand the theoretical foundations for price determination.
5. Understand the limitations of theoretical development in price determination.
6. Understand the market’s application of pricing theory in practice.
7. Understand key issues in risk managing portfolios of derivative securities.
8. Solve problems in derivative security pricing and risk management.
LEARNING ACTIVITIES
You should attend your scheduled class. Students will receive a DN grade in class
when he accumulates 13 absences. Furthermore, each absence results for the loss of
half a point on a scale of 100. Pease review your student manual for more information
on PSU policies. (http://www.psu.edu.sa/cba/Students_Manual_CBA.pdf)
The lectures cover the syllabus material. The lectures will summarise the material
covered in the textbook and will focus on the important concepts and understandings of
the course. The test and the exam will be based on the material covered in the lectures.
The class hours are the only opportunity you will have for regular group discussion of
topics covered in the lectures and textbook. Tutorials will provide you with the best guide
as to your understanding of the course material. This is why it is essential to attend
regularly and be well prepared. This means reading the text, revising your lecture notes
and preparing answers to the tutorial questions and problems. As well you should ask
your professor to explain any parts of the course that you have not understood or found
difficult. You should expect to devote at least 5-7 hours to reading your text/lecture notes
and preparing answers to the tutorial discussion questions.
Each week you will be asked by your professor to explain an answer to the class, or use
the whiteboard to illustrate an answer. In finance, it is important to communicate
effectively in writing using finance theory and to engage confidently in interpersonal
communication in tutorials.
STUDENT FEEDBACK
It is highly valuable that students do give their feedback to improve the unit further for
future students at PSU. They can directly consult Dr. Ikhlaas Gurrib and make
suggestions. These might include ways to improve course outlines, assignments,
presentations, web site information, etc.
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LEARNING RESOURCES
Learning resources are located on the website:

Unit Outline

Sample MCQs

Finance Articles relevant to course

Finance Websites relevant to course
TEXT BOOK
You will need to purchase the following textbook in order to complete this unit:

Robert Kolb and James Overdahl, Futures, Options and Swaps,5th Edition, Blackwell
Publishing
Recommended Texts:
There are many other Principles of Investments texts available from the library. You do
not have to purchase the following textbooks but you may like to refer to them.

Options, Futures, and Other Derivatives, 7th Edition, Copyright © John C. Hull 2008.

Fundamentals of Options and Futures markets, 6th Edition, McGraw Hill, John C. Hull.
ASSESSMENT DETAILS
Assessment Summary
The assessment for this unit consists of the following items.
Assessment Tasks
Class Work
Major 1
Major 2
Assignment
Worth
Due
Unit Learning
Outcome Assessed
15%
Random
1,2,3,4
10%
20th Nov
15%
27th Dec
1, 2, 3
20%
6th Jan
1, 2, 3, 4
1,2,3
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Final exam
TOTAL
40%
Exam Week
1, 2, 3, 4
100%
Assessment 1 – Class Work
Worth: 15%
Due: Collected at random during lectures throughout the semester.
Students will be tested at random four times during the semester. These tests will consist
of two or three questions which will take approximately 15 minutes of lecture time, at the
lecturer’s discretion. Students can refer to notes and texts, etc. but cannot discuss answers
with anyone else. Once student answers are collected, the lecturer’s answers will be
supplied to provide students with immediate feedback on their progress. Each test is
worth 5%, and the student’s best three results will contribute to the assessment for class
work.
Example 1:
Student 1 sat four tests scoring 5, 4, 2, and 3. Therefore, Student 1’s mark for class work
is 5+4+3=12 out of a possible 15.
Example 2:
Student 2 sat three tests scoring 3, 4 and 2. Therefore, Student 2’s mark for class work is
3+4+2=9 out of a possible 15.
If students miss a test, for whatever reason, another test will not be rescheduled. Students
are expected to attend all lectures. By taking the best three out of the four test results, the
lecturer is giving students the flexibility to miss a test through illness etc. It is extremely
unlikely that a student would miss two or more tests for valid reasons.
Assessment 2 – Major 1 and Major 2
Worth: 25%
Major 1 (10%) – Held on 20th Oct
Major 2 (15%) – Held on 10th Nov
The test will examine material covered in Lectures 1-2-3 (Major 1) and Lectures 2-4-5
(Major 2). The test will consist of 10 multiple choice questions for Major 1, and 3 short
answer calculation questions for Major 2. The test will be conducted in normal lecture
time. Please obtain your test time from your professor. Sample multiple choice questions
can be found on the website.
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Assessment 3 - Assignment (Case Study)
Worth: 20%
Due: No later than 6th Jan 2010 3pm (Riyadh Time).
The assignment would consist of an assignment testing various chapters. Due to the
status of the financial crisis nowadays, it is a must for fresh finance professionals like
graduates to fully understand that the different scenes between the crisis. This semester’s
topic is as follows:
“Did deregulated derivatives cause the financial crisis?”
Although it’s a take home assignment, just be aware that plagiarism is a form of cheating.
The penalty for plagiarism is a mark of zero and possible expulsion from the unit and/or
course of study.
It will be a group assignment with a maximum of 2 students per group.
Assignment Marking Criteria
CONTENT (85%)
Sound application and explanation of theory
Relevance of content: appropriate level of detail
Well-reasoned arguments and conclusions
Critical analysis and evaluation
Structure (clear, logical organization)
PROFESSIONAL SKILLS (15%)
Correct in-text referencing and list of references
Style: fluent, concise, correct English & grammar
Professional presentation
Assessment 4 – Final Exam
Worth: 40%
Due: Exam Week – refer to Exam timetable
The exam will consist of a multiple choice section and a written question/problem
section. The exact format will be provided towards the end of the semester. The exam
will cover all the topics in the semester program.
Guidelines for Submission:
All assignments must be received by 6th Jan 2010.
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Assignment Marking
Students should allow a 2 week marking turnaround for written assignments.
STUDENTS’ RIGHTS AND RESPONSIBILITIES
It is the responsibility of every student to be aware of all relevant legislation, policies and
procedures relating to their rights and responsibilities as a student. These include:

the Student Charter,

the University’s Guiding Ethical Principles,

the University’s policy and statements on plagiarism and academic integrity,

copyright principles and responsibilities,

the University’s policies on appropriate use of software and computer facilities,

students’ responsibility to check enrolment,

deadlines, appeals, and grievance resolution,

student feedback,

other policies and procedures

electronic communication with students
See http://www.psu.edu.sa/ByLaws/RulesRegulations_of_Undergraduate_Study_n_Exam.pdf for
comprehensive information on all of the above.
ADDITIONAL INFORMATION
Telephone Contacts:
If you have a query relating to administrative matters such as:


requests for deferment of study
difficulties with accessing online study materials
obtaining assessment results
Please contact the College of Business Administration, Student Affairs.
Deferrals
A deferred assessment is the formal approval by a Board of Examiners for a student to complete
an outstanding assessment task for a unit at a later date.
Outstanding assessment tasks can include an examination or assignment or other work.
Approval for deferred assessment should only be given in circumstances where the specified
criteria are met. For further information please see the current PSU Student manual:
http://www.psu.edu.sa/cba/Students_Manual_CBA.pdf
UNIT STUDY CALENDAR
If you have a printed copy of this document, you may like to tear off this final page and keep the
Study Calendar handy as you work through the unit.
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Semester 1 2009
WEEK
1.
Week
starting
3rd Oct
MODULE/CHAPTER/TOPIC:
2. Mechanics of Futures Markets
17th Oct
3. Hedging Strategies using Futures
4.
24th Oct
4. Mechanics of options markets
5.
31ST Oct
5. Trading strategies involving options
6.
7th Nov
3.
DUE
DATE
Major 1
8th Nov
1. Revision of key concepts + Theoretical
foundations of derivative security pricing.
10th Oct
2.
ASSESSMENT
Mid Semester Test
HAJJ VACATION 19th Nov – 4th Dec
-----No Class during Hajj Vacation----7.
5th Dec
6. Global Financial Crisis and risk management
8.
12th Dec
7. European option pricing (BSM)
9.
19th Dec
8. American option pricing (binomial)
10.
26th Dec
9. Options on stock indices and currencies
11.
2nd Jan
10. Greek letters
12.
9th Jan
11. Interest rate derivatives and swaps
13.
16th Jan
12. A look at a live trading system
14.
23th Jan
13. Derivatives Mishaps and Course Review
15.
30th Jan
Major 2
Assignment
6th Jan
Final Exams
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