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Unit information: Derivatives in 2018/19

Please note: It is possible that the information shown for future academic years may change due to developments in the relevant academic field. Optional unit availability varies depending on both staffing and student choice.

Unit name Derivatives
Unit code EFIM30028
Credit points 10
Level of study H/6
Teaching block(s) Teaching Block 2 (weeks 13 - 24)
Unit director Dr. Balint Horvath
Open unit status Not open
Pre-requisites

EFIM30019 Financial Markets

50% in Corporate Finance summative assessment (EFIM20006)

Co-requisites

None

School/department School of Economics, Finance and Management
Faculty Faculty of Social Sciences and Law

Description

This unit introduces some of the most commonly traded and used financial derivatives: futures, forwards, swaps and options.

The unit covers

  • the properties of futures, forwards, swaps and options;
  • how they are used for risk management purposes;
  • trading strategies involving options;
  • basic principles of pricing derivatives, such as the no arbitrage condition and risk neutrality;
  • binomial trees to price derivatives;
  • the Black-Scholes option pricing formula.

Intended learning outcomes

On successful completion of this unit a student will:

  • understand the terms and properties of derivatives contracts;
  • understand how various derivatives are used for risk hedging;
  • be able to price futures and forwards contracts;
  • be able to price European and American put and call options using the Black-Scholes formula and binomial trees.

Teaching details

10 x 1 hours of lectures; 5 x 1 hours of classes.

Assessment Details

Formative assessment

Formative assessment will be undertaken through classes, where students will receive verbal and, occasionally, written feedback on their work. In addition to comments on their individual work, a 'model answer' will also be provided in order to inform students of what will be expected of them in the examination.

Summative assessment

The unit is assessed via a one-and-a-half-hour examination. The exam will require students to demonstrate their knowledge and understanding of basic financial derivatives contracts.

The exam paper addresses all the learning outcomes.

Reading and References

Main textbook: Hull, J., Options, Futures and Other Derivative Securities, Prentice Hall (global edition)

Additional suitable textbooks:

Hull, J., Fundamentals of futures and options markets, Prentice Hall (latest edition)

McDonald, R.L., Derivatives Markets, Pearson International Edition (latest ed)

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