Introduction into Derivatives

Derivative contracts, among the most commonly traded financial instruments globally, play a crucial role in both hedging financial risks and speculating in financial markets. These instruments include futures and options, which are exchange-traded, and forwards, swaps, and options, which are over-the-counter (OTC) derivatives. The importance of derivatives markets was underscored during the financial crisis of 2007-2008 when defaults on derivative contracts contributed to the bankruptcy of several major financial institutions. This course provides a comprehensive introduction to derivatives, exploring their functions, types, and applications in modern finance.

The course begins with the basics of derivatives, offering a foundational understanding of what derivatives are, their purpose, and how they are utilized in financial markets. This section covers the primary functions of derivatives, including risk management and speculative opportunities.

Next, the course delves into forwards and futures, two fundamental types of derivatives. Participants will learn the distinctions between these contracts, their characteristics, and their applications in various market scenarios. The section on futures will also cover the mechanisms of exchange-traded contracts and the role of futures exchanges. The course then explores options, providing a detailed look at how options contracts work, their various types (calls and puts), and their strategic uses in hedging and speculation. Participants will gain insights into options pricing, payoffs, and the factors influencing options markets.

Finally, the course covers swaps, another key category of OTC derivatives. This section explains the different types of swaps (such as interest rate swaps and currency swaps), their functions, and their significance in financial markets.

By the end of this course, participants will be able to:

- Understand the fundamental concepts and purposes of derivatives.

- Differentiate between exchange-traded derivatives (futures and options) and OTC derivatives (forwards and swaps).

- Explain the structure and uses of forwards and futures contracts in hedging and speculation.

- Describe the mechanics of options contracts, including their types, pricing, and strategic applications.

- Understand the function and importance of swaps in financial markets.

- Apply knowledge of derivatives to real-world financial scenarios, including risk management and speculative strategies.

This course provides a thorough introduction to the world of derivatives, equipping participants with the knowledge and skills needed to navigate and utilize these powerful financial instruments effectively.

• To provide the audience with an understanding of the essence of the derivative contract, types of derivatives, main differences between exchange-traded derivatives and OTC derivatives, and features of forwards, futures, options, and swaps.

• Basics of derivatives (1 hour)
• Forwards (1 hour)
• Futures (1 hour)
• Options (1 hour)
• Swaps (1 hour)

Total: 5 hours