SMU Classification: Restricted

The Lee Kong Chian School of Business

Academic Year 2019/20
Term 1

QF207 STRUCTURED PRODUCTS SALES AND TRADING

Instructor: Christopher Ting
Title: Associate Professor of Quantitative Finance (Practice)
Tel: 6828 0364
Email: christophert@smu.edu.sg
Office: LKCSB #5036

COURSE DESCRIPTION
The global financial market has experienced a tremendous growth since its inception in the early 1970s. As of
the end of 2013, the notional amount of outstanding over-the-counter (OTC) derivatives totalled $710 trillion.
This phenomenal growth can be attributed to the fact that there is a genuine need for financial risk
management. Structured products are financial instruments created based on options and other derivatives,
tailored to the specific needs of the clients. Global businesses are exposed to movements in exchange rates,
commodity prices, interest rates and equity prices. Structured products designed to effectively transfer these
market sensitivities for effective risk management serve a real purpose and are consequently in high demand.
Clearly, students interested in a sales and trading career must develop a deep insight in the market mechanics
for them to price, trade and hedge these products efficiently.

This course is designed to equip you with a strong foundation on the theoretical and practical aspects of sales,
structuring, and trading. You will be brought up to speed with all the major current subjects, including the
necessary knowledge and insights to appreciate the latest developments in the financial market. Throughout
the course, we provide practical examples for every concept introduced, so that students can get a good grasp
on the practical aspects of derivative trading and how they can be applied to the financial market.

LEARNING OBJECTIVES
By the end of this course, students will be able to:
 Understand the financial market structure of major asset classes including currency, commodity, stock
and fixed income.
 Understand aspects of financial instruments such as pricing, valuation, cost of carry, securitization,
structuring, risk management and hedging.
 Solve problems involving structured products of practical interests to the industry.
 Be up to date with the state-of-the-art developments in the financial market.

PRE-REQUISITE/CO-REQUISITE/MUTUALLY EXCLUSIVE COURSE(S)

Please refer to the Course Catalogue on OASIS for the most updated list of pre-requisites / co-requisites for
this particular course.

Do note that if this course has a co-requisite, it means that the course has to be taken together with another
course. Dropping one course during BOSS bidding would result in both courses being dropped at the same
time.

ASSESSMENT METHOD (Total 100%)

Class participation: 12%
Homework assignment: 19%
In-Class Exercise: 19%
Final examination : 50%
Faculty have been instructed not to reuse questions verbatim from past year papers or published test banks,

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for the graded continuous assessments and examinations in this course.

ACADEMIC INTEGRITY
All acts of academic dishonesty (including, but not limited to, plagiarism, cheating, fabrication, facilitation of acts
of academic dishonesty by others, unauthorized possession of exam questions, or tampering with the academic
work of other students) are serious offences.
All work (whether oral or written) submitted for purposes of assessment must be the student’s own work.
Penalties for violation of the policy range from zero marks for the component assessment to expulsion,
depending on the nature of the offence.

When in doubt, students should consult the course instructor. Details on the SMU Code of Academic
Integrity may be accessed at http://www.smuscd.org/resources.html.

ACCESSIBILITY
SMU strives to make learning experiences accessible for all. If you anticipate or experience physical or
academic barriers due to disability, please let me know immediately. You are also welcome to contact the
university's disability services team if you have questions or concerns about academic provisions:
included@smu.edu.sg.
Please be aware that the accessible tables in our seminar room should remain available for students who
require them.

EMERGENCY PREPAREDNESS FOR TEACHING AND LEARNING (EPTL)

Where there is an emergency that makes it infeasible to have classes on campus, classes will be conducted
online via WebEx, with no disruption to the schedule. To familiarise students with the WebEx platform, part
of this course may be conducted online. The instructor will inform students of which classes, if any, will be
conducted as part of this EPTL initiative.

INSTRUCTIONAL METHODS AND EXPECTATIONS

Lectures
Important knowledge of the financial market and key concepts of the instruments traded are introduced.
Examples to illustrate the theory will be amply provided. For an effective learning experience, students are
strongly encouraged to review course materials after each lecture and proceed to attempt the supplementary
question set and weekly assignment in a timely basis.

Exercises
Question pack will be provided for each lecture for students to practise on concepts taught in lectures.

In-Class Exercise
Work as a group to solve questions together and present your answers and thinking that led to them.

Examination
The (closed-book) final exam will focus on the materials covered in the course.

CONSULTATIONS
Office consultation is available each week.

CLASS TIMINGS
This course will be taught in 3-hour session.

RECOMMENDED TEXT AND READINGS

Course pack available.

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1. Derivatives Demystified: A Step-by-Step Guide to Forwards, Futures, Swaps and Options by Andrew
M. Chisholm
2. Options, Futures and Other Derivatives by John Hull.
Additional reading materials for the advanced topics discussed in this module will be provided as the course
progresses.

WEEKLY LESSON PLANS

Specific Learning
Week
Objectives Topics Covered
No.
for the Lesson
Financial Markets Overview of the world of derivatives and the financial market in general. Major asset classes:
1
and Derivatives equity, fixed income, currency, commodity etc.
Forwards and Relationship between spot and forward, interest rate parity, futures market, hedging and
2
Futures trading. Covers specifics in equity, foreign exchange and commodity markets.
Forward rates and discount factors, day count conventions, Interest Rate Swaps (IRS), Cross-
3 Interest Rate Market
Currency Swaps (CCS), Forward Rate Agreements (FRA), Eurodollar futures etc.
Option Market and Vanilla options, boundaries of option prices, put-call parity, European/American exercise,
4
Strategies option strategies, Black-Scholes.
Delta, gamma, vega, theta. Gamma trading, time decay, hedging strategies, portfolio risk
5 Greeks and Hedging
management, intraday P&L calculation.
Barrier options, gap options, cliquets, Asian options, digital options etc. Rationale, replication
6 Exotic Options
and effective risk management.
Binomial Tree
7 Multi period model, risk neutrality, probability, sample space.
Pricing Model
8 Mid-Term Break
Volatility smile and skew, volatility surface, implied vs. realised volatilities, variance swaps,
9 Volatility Trading volatility risk management. Trading Chicago Board Options Exchange’s Market Volatility
Index (CBOE VIX).
Target Accrual Redemption Notes (TARNs), Autocallable Notes, Range Accrual Notes,
10 Structured Products
Inverse Floaters, Dual Currency Deposits, Discount Certificates.
Credit risks, bootstrapping default probabilities, credit ratings, credit spreads, Credit Default
11 Credit Derivatives
Swaps (CDS), Asset Swaps etc. Real world vs. risk-neutral default probabilities.
Catch-up /
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Presentation
13 Course Revision Practice-focussed course revision pack, worked examples,
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