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BUU44650 Derivatives

5 ECT credits - (Semester 2 Module)


Professor Donal McKillop

Module Outline

Derivatives have become extremely popular investment tools over the past 30 years, as they allow investors to tailor the amount and type of risk they take, be it risk associated with changes in interest rates, exchange rates, stock prices, commodity prices, inflation and so on. They are used by institutions as well as investors, sometimes to hedge unwanted risks and sometimes to take on additional risk motivated by views regarding future market movements. This module examines the primary types of derivatives (forwards, futures, options and swaps), shows how they are used to achieve various hedging and speculating objectives, outlines a framework for pricing derivatives and studies some applications of derivative-pricing techniques outside derivative markets. The objective is to provide a good grounding in techniques and approaches for the measurement and management of financial risks.

Learning Outcomes

Having completed this module, you should be able to:

  • Provide an understanding of derivatives and introduce the analytics of derivative valuation
  • Demonstrate how to value forward, futures, swaps and options
  • Describe and appraise how derivatives can be used to achieve various hedging and speculative strategies
  • Evaluate previous derivative mishaps and what we can learn from them
  • Employ DerivaGem software to demonstrate the calculation of option prices and option price sensitivities

Textbook and Readings

Hull, J. (2017), Fundamentals of Futures and Options Markets, Eighth Edition, Pearson Education Limited
Reference will be made to additional material throughout the course. Please refer to Blackboard for details.

Module Prerequisite

BUU22550 Introduction to Finance (SF Year)


Assessment for this course will be as follows:

  1. Mid-Term Examination:          30%.
  2. Final Examination:                  70%.