Concordia University - FINA 412: Options and Futures (Solutions)

- Concordia University's FINA 412: Options and Futures offers a comprehensive analysis of derivatives, their role in finance, and their applications in risk management and markets. The course covers everything from option mechanics and pricing models (including the Black-Scholes-Merton model) to various option and futures strategies used for hedging and speculation. It also explores options on stock indices and currencies, American options pricing, the concept of the Greeks (option price sensitivities), and concludes with an examination of swaps, financial instruments used for exchanging cash flows.

✔ (Summary) What You Will Learn:

• Introduction to Derivatives: The course begins by providing a fundamental understanding of derivatives, emphasizing their significance in finance and their applications in risk management and financial markets.
• Mechanics of Options Markets: The focus shifts to the structure and functioning of options markets, exploring the role of market makers, trading mechanisms, and the various types of options available.
• Properties of Stock Options: This section delves into the factors affecting option prices, such as stock price, strike price, time to expiration, volatility, risk-free rate, and dividends.
• Trading Strategies Involving Options: The course introduces various trading strategies that involve options, including covered calls, married puts, bull call spreads, bear put spreads, and protective collars.
• Pricing European Options by Using Binomial Trees: Participants will learn how to price European options using binomial trees, a widely employed method for valuing options.
• Black-Scholes-Merton Model: The renowned Black-Scholes-Merton model is covered, which is utilized to price European options and is considered a cornerstone of modern finance.
• Options on Stock Indices and Currencies: The course explores options on stock indices and currencies, including their valuation and applications in risk management.
• Pricing American Options: The pricing of American options, which can be exercised at any time before their expiration date, is covered.
• The Greek Letters: This section introduces the concept of the Greek letters, which measure the sensitivity of option prices to changes in various factors, such as stock price, time to expiration, and volatility.
• Futures and Forward Contracts: Participants will learn about futures and forward contracts, their differences, and their applications in risk management and speculation.
• Hedging Strategies Using Futures: The course covers various hedging strategies using futures contracts to manage different types of risks.
• Determination of Forward and Futures Prices: Participants will learn how to determine forward and futures prices based on factors such as interest rates, dividends, and storage costs.
• Swaps: The course concludes with a discussion of swaps, which are agreements between two parties to exchange cash flows based on different financial instruments or indices.