Derivatives: Forwards, Futures, Swaps, and Options
The market for financial instruments called derivatives has experienced dramatic growth over the years. Market participants use derivatives (commonly various types of forwards, futures, swaps, and options) to transfer and manage risks regarding practically anything (e.g., from common ones, including financial assets such as stocks and indices, or commodities such as oil, corn, and wheat, to more niche ones such as weather), as well as express views on market outcomes about them and trade to make profit. My goal is to help students develop strong intuition and build the skills necessary to understand, value, and use derivatives. In order to provide a useful treatment of the topics suitable for a rapidly changing environment, I will stress fundamental concepts and emphasize important applications throughout the course.
Topics
- Learn how derivatives are used to transfer and manage risks of their "underlying" asset (which includes but is not limited to financial assets, commodities, and interest rates), as well as express views on market outcomes about them. For example, oil futures can be used to create protection against movements in oil price and thus minimize the buyer's exposure to it, or in contrast they can also be used to bet in favor or against oil price.
- Learn how the type of the underlying asset affects how a derivative operates and is priced. For example, the pricing characteristics of a future differ if the underlying asset is a financial asset, a commodity, or interest rate.
- Learn the no-arbitrage principle and how it is used to price forwards, futures, and swaps.
- Learn how the fact that forwards are traded over the counter and futures are traded over exchanges impact these derivatives.
- Learn the pricing of options, as well as why and how their pricing differs from the pricing of the other derivatives mentioned above (forwards, futures, and swaps).
Official roster learning outcomes
Prerequisites & course information
HADM 2220 or HADM 2250 or HADM 7230 or AEM 2240 or AEM 2241 or AEM 5241 or NCC 5060 or NCC 5560.
Sources
- Course catalogue ↗2026-2027
- Catalogue entry ↗
Catalogue variants
- Derivatives: Forwards, Futures, Swaps, and Options · 3.0 · Undergraduate