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| Module Availability |
| Spring |
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| Assessment Pattern |
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Unit(s) of Assessment
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Weighting Towards Module Mark (%)
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Two assignments each worth 5%
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10
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Test (2 hours, multiple choice and small problems
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20
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Examination (Closed book, 2 hours)
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70
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| Module Overview |
This module is targeted at students interested in understanding the purpose and use of derivative securities, specifically forwards, futures, swaps and options. Applications in hedging and speculating in corporate and funds management are used to reinforce a rigorous development of arbitrage theory that underpins the pricing behaviour of derivative securities. This unit is aimed at students seeking a career in the Financial Services Industry who are seeking a deeper understanding of the derivatives based products that they sell. |
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| Prerequisites/Co-requisites |
| Candidates must have taken Foundations of Finance, MA303 |
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| Module Aims |
| This module aims to provide a complete understanding of derivative securities, forwards, futures, swaps and options, including the binomial and continuous time pricing theory based on pure arbitrage and the uses of various derivative securities in a corporate setting as well as in funds management. Candidates are also exposed to the institutional structure of various derivative markets such as margin requirements, types of orders, trading styles and so on. |
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| Learning Outcomes |
On successful completion of this module the students will be able to:
- Understand and be able to explain pure arbitrage theories and relate them to the pricing of all types of derivative securities including forward, futures and options.
- Know the structure of exchange traded and over the counter markets in derivative securities.
- Be able to implement a simple binomial model using spreadsheets to value exotic derivative securities.
- Introduce various types of derivative securities and discuss the role each financial security can play in achieving financial objectives.
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Critically think both theoretically and strategically about derivatives and be able to apply them to portfolios of cash securities to develop creative portfolio strategies for corporations and funds.
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| Module Content |
- Mechanics of Forward and Futures Markets
- Hedging Strategies using Forwards and Futures
- Determination of Forward and Futures prices
- Interest rate Swaps
- Mechanics of Options markets
- Trading Strategies involving options
- Introduction to Binomial Trees
- Valuing Stock Options: The Black-Scholes Model
- Options on Stock Indices and Currencies
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| Methods of Teaching/Learning |
The teaching and learning strategy is designed to allow students to come to grips with the essential quantitative nature of the subject, and more importantly, to facilitate the application to practical problems.
The teaching and learning methods include formal lecture and tutorial to impart theory, use of exercises to reinforce and test learning and the use of U-Learning to facilitate teaching, enhance the learning outcomes and direct students to the relevant reading in the set textbooks and in journal articles. |
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| Selected Texts/Journals |
Books
Expected purchase
Hull, John C., (2008) Fundamentals of Futures and Options Markets, 6th edition, Prentice Hall
Recommended
Hull, John C., (2007) Futures, Options Markets and Other Derivative Securities, 6th edition, Prentice Hall
Supporting
Anderson Torben J (2006) Global Derivatives, Prentice Hall
Denton, Jonathan (2006) Practical Derivatives, Global Law and Business.
Skinner, Frank S. (2005) Pricing and Hedging Interest and Credit Risk Sensitive Instruments, Elsevier
Other Indicative Reading
Articles and other material from the financial pages of newspapers and academic
Journals, such as:
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| Last Updated |
| 03.03.2011 |
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