QF430 Introduction to Derivatives

Course Catalog Description


This course introduces students to financial derivatives. Common derivative securities such as forwards, futures, swaps, and options are discussed. Students learn how investors use derivative securities, how traders and market makers price and hedge their exposure to these securities, and how financial institutions and regulators maintain orderly markets in derivative securities. This is a general introduction to derivatives and does not discuss exotic securities or advanced numerical techniques.

The course is mostly lecture-based, relying heavily on the textbook. Students are expected to learn terminology and institution details as well as quantitative skills in pricing derivative securities. No prior knowledge of derivatives is expected. Students are expected to be familiar with time value of money concepts and investments or corporate finance. Knowledge of calculus is needed.

Campus Fall Spring Summer
On Campus X X
Web Campus


Professor Email Office
Anand Goel
agoel2@stevens.edu Babbio 635
Jingrui Li jli264@stevens.edu

More Information

Course Outcomes

After successful completion of this course, students will be able to:

  • Understand and compare uses of different derivative securities
  • Distinguish between equilibrium pricing and absence-of-arbitrage pricing
  • Price and hedge common derivative securities
  • Explain institutional features of derivatives markets and regulation
  • Avoid misconceptions about derivatives and misuses of derivatives

Course Resources


Fundamentals of Futures and Options Markets, John C. Hull, Pearson, Ninth Edition. ISBN: 978013408324. An electronic version is available at https://tinyurl.com/HullEbook

Solutions Manual: Student's Solutions Manual and Study Guide for Fundamentals of Futures and Options Markets, 9th Edition ISBN: 9780134083650.

Additional electronic resources (articles or cases) may be recommended during the course.


Format and Structure

  • Lectures will cover theory and examples.
  • Students will solve problems from the textbook, but these will not be collected or graded.
  • Students will submit assigned problem sets which will be graded.
  • Students will work on mathematical / programming assignment.

Course Requirements

Participation: Be prepared for the class and ready to answer questions. Volunteering to answer, asking questions, connecting with current events, supporting or critiquing other viewpoints are all examples of positive participation. Participation is encouraged even if you are not sure of your answers or think your question is too basic. Participation can also occur outside of classroom if a student is more comfortable communicating outside class.

Problem Sets: Problem sets are due at class start time on the days indicated in the schedule and will be made available three class sessions before due date.

Team Projects: Details to be provided later.

Exams: There will be a Midterm exam and a Final exam. The Final exam will be based on everything covered in the class but with a heavy emphasis on material covered after Midterm. The exams will consist of numerical problems and conceptual questions requiring short answers.

Grading Policies

Grades will be based on:

Attendance - 5%

Problem Sets - 30%

Team Projects - 15%

Midterm Exam - 25%

Final Exam - 25%

Late Policy Problem sets and team project late by less than 24 hours will be penalized 10%. There will be no credit for submissions that are late by more than 24 hours. Exceptions are unlikely but if you face a special circumstance, contact the instructor as soon as possible.

Lecture Outline

Tentative Course Schedule

  • The schedule may be revised as the term progresses. Some topics may be omitted. Students will be informed of any revisions in class and through the course website.
  • The readings refer to textbook chapter numbers and must be read in advance.
  • Problem sets are due at class start time and will be assigned three class sessions before due date.

Session Topic Reading
1 Introduction Chapter 1
3 Futures markets Chapter 2
5 Hedging with futures Chapter 3
7 Interest rates Chapter 4
9 Forward and futures prices Chapter 5
11 Interest rate futures Chapter 6
12 Swaps Chapter 7
14 Securitization Chapter 8
15 Midterm
16 Options markets Chapter 9
17 Stock options properties Chapter 10
18 Financial engineering with options Chapter 11
19 Binomial trees Chapter 12
20 Stochastic processes Chapter 13
21 Black-Scholes-Merton model Chapters 13,15,16
22 Risk-neutral pricing Chapter 13
23 Numerical valuation Chapter 18
24 Option risk measures Chapter 17
25 Credit derivatives Chapter 23
26 Derivative mishaps Chapter 25
27 Real options
28 Review