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The University of Southampton

ECON6042 Financial Derivatives

Module Overview

The module studies quantitative techniques for pricing the main financial derivatives available for trading in financial markets. This is done under assumptions imposing absence of arbitrage opportunities in financial markets. The module focuses on futures and forwards on bonds and stocks, swap contracts and stock options. The module also introduces students to more advanced techniques for pricing derivatives such as binomial trees and Black-Scholes model.

Aims and Objectives

Learning Outcomes

Learning Outcomes

Having successfully completed this module you will be able to:

  • Have a good understanding of derivative securities
  • Acquire knowledge of how forward contracts, futures contracts, swaps and options work, how they are used and how they are priced
  • Be able to describe and explain the fundamental features of a range of key financial derivative instruments
  • Be able to decide which securities to use for hedging and/or speculative purposes


This course covers forward contracts, futures contracts, swaps, and options. The main topics to be covered are - Valuation of futures and forward contracts - Valuation of swap contracts - Stock options: valuation, hedging and trading strategies - Valuation of stock options using binomial trees - The Black-Scholes model and the Greek derivatives

Learning and Teaching

Teaching and learning methods

The module is divided into lectures and classes. Lectures are used for explaining the theory of financial derivatives and classes are used for solving problems related to the theory.. Lectures will be based on lecture notes posted by the lecturer on blackboard. Problem solving sessions will consist of explanations of the lecturer solving questions from problem sets provided by the lecturer in advance.

Independent Study80
Total study time100

Resources & Reading list

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

Jarrow, R., and Turnbull, S., (2000). Derivative Securities. 

Fabozzi, F. J., Modigliani, F. G., Jones, F, and Ferri, M. G.  (2002). Foundations of Financial Markets and Institutions. 

Jones, C. (2008). Financial Economics. 

Other. Most of the material relevant for the course (lecture notes, problem sets, past exams, feedback) is provided in Blackboard. Lecture notes are based on the textbook (available in the University library)


Assessment Strategy

Midterm exam (1.30 hour exam). Formative assessment Final exam (2 hour exam). Summative assessment. Provide solutions to the exams and upload them in Blackboard. Explain the solutions during a class, if time allows.


MethodPercentage contribution
Exam  (1.3 hours) 10%
Exam  (2 hours) 90%


MethodPercentage contribution
Exam  (2 hours) 100%


MethodPercentage contribution
Exam  (2 hours) 100%

Repeat Information

Repeat type: Internal & External

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