The University of Southampton
Courses

MANG3020 Futures and Options

Module Overview

In the last 30 years derivatives have become increasingly important in finance and many different types of derivatives are actively traded on exchanges throughout the world. This module explores the pricing and use forwards, futures and options with a particular focus on contracts where the underlying asset is a financial asset - for example, a stock index (i.e. stock index futures or stock index options). Students will learn how to price these derivatives using various techniques as well as understand how we can use them for (i) speculating purposes, (ii) hedging strategies and (iii) cases where there are arbitrage opportunities.

Aims and Objectives

Module Aims

The main aim of the module is to provide students with a solid background in futures, forwards and options with a particular focus on contracts where the underlying asset is a stock market index. Important analytical skills will be developed including the use of these financial instruments to form various trading strategies under realistic scenarios as well as the application of appropriate pricing models to determine their value. Finally, students will become familiar with the different dimensions of risk that need to be managed when dynamic hedging is involved.

Learning Outcomes

Knowledge and Understanding

Having successfully completed this module, you will be able to demonstrate knowledge and understanding of:

  • The concepts and market mechanics of different types of financial derivatives.
  • How financial derivatives are valued, based on the no-arbitrage and risk-neutral valuation approaches.
  • How these instruments can be used to implement risk management strategies.
Transferable and Generic Skills

Having successfully completed this module you will be able to:

  • Solve problems with respect to financial derivatives.
  • Identify appropriate techniques and apply them to particular problems.
  • Enhance quantitative skills.
Subject Specific Intellectual and Research Skills

Having successfully completed this module you will be able to:

  • Differentiate among different types of derivative products.
  • Price forwards, futures and options using suitable models and techniques.
  • Explain and apply trading/hedging strategies using futures and options.

Syllabus

• Introduction to Forwards, Futures and Options. • Hedging with Forwards and Futures. • Pricing of Forward and Futures. • Mechanics of Options Markets. • Stock Option Trading Strategies. • Mathematics of Options Pricing. • Stochastic Processes and Ito's Lemma. • The Black-Scholes-Merton Model. • Dynamic Hedging and Risk Management with Options

Special Features

Note: Some background in maths and statistics is required.

Learning and Teaching

Teaching and learning methods

This module will last one semester. It consists of about 30 sessions of 45 minutes each. These will be divided into about 20 lectures and 10 classes

TypeHours
Wider reading or practice10
Preparation for scheduled sessions35
Tutorial10
Follow-up work75
Lecture20
Total study time150

Resources & Reading list

John C. Hull (2012). Options, Futures and Other Derivatives. 

Assessment

Formative

Coursework

Summative

MethodPercentage contribution
Examination  (2 hours) 80%
Multiple choice Test  (1 hours) 20%

Repeat

MethodPercentage contribution
Examination  (2 hours) 100%

Referral

MethodPercentage contribution
Examination  (2 hours) 100%

Linked modules

Pre-requisites

To study this module, you will need to have studied the following module(s):

CodeModule
MANG2004Portfolio Theory and Financial Markets
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