5 ECT credits - (Semester 2 Module)
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 and Teaching Approach
This module is structured around a series of lectures and tutorials. Lecture slides will be provided in advance of lectures. Students will be provided with practice questions and solutions will be discussed in tutorials.
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
- Discuss various types of derivatives such as options on stock indices and currencies, futures options and exotic options
- Evaluate previous derivative mishaps and what we can learn from them
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.
BUU22550 Introduction to Finance (SF Year)
Assessment for this course will be as follows:
- Derivatives Mid-Term Examination (Individual): 20%
- Final Examination (Individual): 80%.