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 of 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) speculation, (ii) hedging strategies and (iii) arbitrage. The nature of the subject makes the module more suitable for students with a solid background in mathematics and familiarity with differential calculus and systems of equations.

Linked modules

Pre-requisite MANG2004

Aims and Objectives

Learning Outcomes

Knowledge and Understanding

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

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

Subject Specific Intellectual and Research Skills

Having successfully completed this module you will be able to:

explain and apply trading/hedging strategies using futures and options.
price forwards, futures and options using suitable models and techniques;
differentiate among different types of derivative products;

Transferable and Generic Skills

Having successfully completed this module you will be able to:

enhance quantitative skills.
solve problems with respect to financial derivatives;
identify appropriate techniques and apply them to particular problems;

Learning and Teaching

Teaching and learning methods

This module will last one semester. It consists of about 34 sessions of 45 minutes each. These will be divided into about 24 lectures and 10 classes.

Study time
Type	Hours
Wider reading or practice	6
Seminar	10
Follow-up work	75
Preparation for scheduled sessions	35
Lecture	24
Total study time	150

Resources & Reading list

Textbooks

Hull, John. C (2018). Options, Futures and Other Derivatives. Prentice-Hall.

Assessment

Formative

This is how we’ll give you feedback as you are learning. It is not a formal test or exam.

In-class activities

Assessment Type: Formative
Feedback: Solutions to Multiple-choice will be given in each session and feedback on answers will be discussed in class. Numerical and theoretical exercises will be given out before hand and discussed in each seminar. Feedback will be given by the seminar teacher. You are also welcome to ask for further feedback during the feedback and advice hours.
Final Assessment: No
Group Work: No

Class discussions

Assessment Type: Formative
Feedback: Formative feedback will be given during classes, lectures and in-person during the office hours or via e-mail when appropriate
Final Assessment: No
Group Work: No

Summative

This is how we’ll formally assess what you have learned in this module.

Breakdown
Method	Percentage contribution
Examination	20%
Examination	80%

Referral

This is how we’ll assess you if you don’t meet the criteria to pass this module.

Breakdown
Method	Percentage contribution
Examination	100%

Repeat

An internal repeat is where you take all of your modules again, including any you passed. An external repeat is where you only re-take the modules you failed.

Breakdown
Method	Percentage contribution
Examination	100%

Repeat Information

Repeat type: Internal & External