Derivatives

The course will examine the legal, regulatory, trading and risk management aspects of the $600 trillion notional over-the-counter and cleared derivatives markets. Derivatives have historically not been well-understood by regulators or the public and have been blamed for causing or contributing to the economic crisis. This course will offer students the opportunity to understand how various derivative products are designed, traded and risk-managed and what role regulators play in the derivatives industry. In addition, students will focus on understanding key legal contracts that underpin the global derivatives industry, in particular focusing on the ISDA© Master Agreement and Credit Support Annex, as well as documentation supporting credit derivatives and other common derivative types. Students will also consider the shifting regulatory landscape for financial institutions and hedge funds as it relates to the way in which these products are traded, with rates and credit products migrating to clearinghouses. The course will conclude with an examination of the economic crisis that erupted with Lehman Brothers' bankruptcy in September 2008 and the consequent policy reactions to that event from a derivatives and bankruptcy perspective. Elements used in grading: attendance, written homework assignments and a final exam.