• Unit 9: Derivative Products

    This unit provides a review of different derivative products and their use for hedging and insurance purposes. In this unit, you will learn about the use of exchange-traded derivatives (that is, stock options) as well as over-the-counter financial instruments such as credit default swaps (CDS) and collateralized debt obligations (CDOs).

    Completing this unit should take you approximately 3 hours.

    • Upon successful completion of this unit, you will be able to:

      • value put options and call options using the Black-Scholes formula;
      • describe the payoff of a financial future instrument; and
      • identify the benefits of entering into an "interest rate swap" and the nature of currency swap.

    • 9.1: Traded Options

      • Introduction to the Black-Scholes Formula Page

        The Black Scholes formula, also known as the Black-Scholes-Merton (BSM), is a call option formula for pricing options contracts. It is one of the most important concepts in financial theory. Why is this important?

    • 9.2: Financial Futures

      • Forward and Futures Contracts Book

        One derivative contract is a forward contract, where parties agree to trade assets at a future date at a specified price. Both forward and futures contracts are similar in terms of their nature. However, future contracts are standardized agreements, unlike forward contracts. These videos (along with the attached slides) discuss financial futures contacts in detail, including how to calculate payoffs. What are some other differences between forward contracts and futures contracts, and what determines forward and futures prices?

    • 9.3: Other Derivative Products

      • Interest Rate Swaps Page

        Interest rate swaps (IRS) are agreements to exchange interest payment streams with one another over a specified period. The commonly traded IRS are vanilla swaps, where the exchange is between fixed-rate payments and floating-rate payments based on the London Inter-Bank Offered Rate (LIBOR). Why would investors opt to invest in interest rate swaps?

      • Currency Swaps Page

        Here, you will learn more about currency exchange swaps, the terms of this contract, and how they are calculated. Why would investors opt for currency swaps?

    • Unit 9 Study Resources

      This review video is an excellent way to review what you've learned so far and is presented by one of the professors who created the course.

    • Unit 9 Assessment

      • Unit 9 Assessment Quiz
        Receive a grade

        Take this assessment to see how well you understood this unit.

        • This assessment does not count towards your grade. It is just for practice!
        • You will see the correct answers when you submit your answers. Use this to help you study for the final exam!
        • You can take this assessment as many times as you want, whenever you want.