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 section of the 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 several 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.
Having completed this module, you should be able to:
- Explain the mechanisms for managing foreign exchange rate exposure
- 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
Textbook and Readings
Hull, J. (2008), Fundamentals of Futures and Options Markets, Sixth Edition, Pearson Prentice Hall
BUU22550 Introduction to Finance
Assessment for this course will be as follows:
Students unable to submit an assignment for medical reasons must produce a medical certificate to the course lecturer within three working days of the missed submission date. Certificates received after that time will not be accepted.