Skip to main content

Unit information: Derivatives in 2016/17

Please note: you are viewing unit and programme information for a past academic year. Please see the current academic year for up to date information.

Unit name Derivatives
Unit code ECONM3017
Credit points 15
Level of study M/7
Teaching block(s) Teaching Block 2 (weeks 13 - 24)
Unit director Professor. Nick Taylor
Open unit status Not open
Pre-requisites

None

Co-requisites

None

School/department School of Accounting and Finance
Faculty Faculty of Social Sciences and Law

Description

This unit begins by introducing options and options markets. The concept of risk-free arbitrage and other methods are used to develop the Black-Scholes option pricing formula. This is followed by a discussion of the extensions and refinements of the Black-Scholes model, together with an examination of implied standard deviations. The option pricing section of the unit ends with an analysis of the way in which many financial contracts can be interpreted as options, and the insights achieved by such interpretation. The unit ends with an examination of futures, their pricing and the way in which they can be used to hedge risk.

Intended learning outcomes

Students should:

  • Be familiar with the concept of derivatives and the importance of risk-neutral equivalent pricing in this context;
  • Perform calculations involving risk-neutral equivalent pricing and other aspects such as outcomes of hedging positions;
  • Be familiar with the basic terminology relating to the options markets and with the way in which options function;
  • Understand the difficulty of pricing options and the assumptions which underlie the most commonly used pricing model;
  • Should be able to apply their knowledge of the behaviour of options to discuss and value financial contracts which display the same characteristics as options;
  • Analyse situations involving derivatives as covered in the course.

Teaching details

Lectures, seminars

Assessment Details

One formative computer-based test involving short questions that cover all learning outcomes. Some multiple choice questions, others requiring calculation. Summative assessment: 3-hour examination with approximately 8 short questions ranging over the whole syllabus (particularly including requirements to define and explain basic terminology and option functioning (LOs 1, 2, 3) together with two long questions particularly focusing on LOs 4, 5, 6.

Reading and References

  • John Hull Options, Futures and Other Derivative Securities, Prentice Hall
  • McDonald, R.L., Derivatives Markets, Pearson International Edition

Feedback