FINA6325 Financial Derivatives I

Course Description

Introduction to futures and forward contracts and their markets, including how these derivatives are created and traded. The course covers how businesses can use these contracts to hedge risk. Students are introduced to the principles of valuation and pricing for these securities and the mathematical models that apply. Swaps may be covered if time permits.

Course Credits: 3


  • (a) MBA Online course prerequisite: FINA 6320 (Financial Management). In particular, a solid understanding of discounted cash flow models (e.g., present value and future value models) is essential.
  • (b) Computer skills: working knowledge of the basics of Microsoft Excel and Word. I may require that selected computational assignments be submitted in Excel and any written assignments be submitted in Word. (At the time of this writing, however, I have no Excel or written assignments in the course.)
  • (c) Quantitative skills: math skills at the level of an undergraduate business calculus course and statistics skills at the level of an introductory course on statistical estimation and inference (including descriptive statistics, basics of probability distributions and random variables, sampling methods, statistical estimation, hypothesis testing, linear regression, and basic nonparametric statistics).

Prerequisites (b) and (c) are implicit in the program admissions requirements. But sometimes students either did not properly master these skills in the first place or let these skills get rusty. Heads up: This course is more quantitative than most MBA courses. 

Student Learning Outcomes

By the end of this course, you should be able to do the following.

  • Describe the the fundamental features of the major types of futures contracts and explain how these contracts are created.
  • Explain how these features determine the fundamental value of each contract and how this value is linked to prices in the spot markets for the underlying assets.
  • Describe how prices for futures are determined by trading in the market, given their fundamental value. In particular, explain how arbitrage aligns the price of financial derivatives with their fundamental values.
  • Find information about the features of a futures contract and the price of the underlying asset.
  • Apply the appropriate mathematical model to estimate the fundamental value of the contract (and hence the price at which it should be trading).
  • Explain how features of modern futures exchanges minimize the risk of default on these contracts.
  • Compare the relative strengths and weaknesses of organized futures exchanges with their over-the-counter counterparts.