2024/25 Taught Postgraduate Module Catalogue

LUBS5050M Financial Derivatives

15 creditsClass Size: 60

Module manager: Muhammad Uddin
Email: M.M.Uddin@leeds.ac.uk

Taught: Semester 2 (Jan to Jun) View Timetable

Year running 2024/25

Pre-requisites

LUBS5004M

Corporate Finance

This module is not approved as an Elective

Module summary

Financial Derivatives is intended to build on knowledge acquired in previous modules (particularly LUBS 5004M Corporate Finance) and provide a critical appreciation of the underlying features and functions of a range of financial derivatives. The module demonstrates how various financial derivatives can be priced and the payoffs resulting from different positions involving derivatives and requires you to be able to confidently use, interpret and manipulate financial formulas and numerical data. It also introduces you to recent empirical academic literature in the field of financial derivatives

Objectives

The aims of the module are to develop a critical appreciation of the key features of major derivative instruments and the principles of derivatives pricing, to develop a practical understanding of the possible uses of derivative instruments and specifically to apply that knowledge to explore how derivative instruments can be used in risk management and to enable students to critically appreciate recent research in the area of financial derivatives.

Learning outcomes
On completion of the module students will be able to:
- Assess and evaluate the key features of a range of derivative instruments
- Critically evaluate ways in which financial derivatives can be used for managing risk and for trading
- Categorise appropriate models for derivative pricing and utilise such models to price instruments
- Critically evaluate contemporary theories and the empirical research evidence base in areas of financial derivatives and outline the current knowledge boundaries in this area

Skills outcomes
Transferable:
- Extract relevant information from structured scenarios and data in order to identify problems and define solutions
- Structure and communicate quantitative and qualitative information, ideas, analysis, argument and commentary
- Communicate effectively in writing

Subject Specific:
- Demonstrate appropriate numeracy skills by applying core knowledge of financial derivatives in a range of scenarios

Syllabus

Indicative content:
- Introduction: Types of derivatives, derivative markets, purpose of derivatives
- Futures and Forwards: Mechanics of futures markets. Determination of futures and forward prices
- Hedging strategies using futures
- The effects of derivative securities on the underlying market and derivative mishaps
- Interest Rate Markets & Swaps: Term structures, yield curves, forward rates. Nature of swaps
- Swaps: Interest rate and currency swaps, valuation of swaps
- Introduction to Options: Properties of option prices. Trading strategies including options
- Introduction to Option valuation: No arbitrage valuation principles, binomial trees
- The Black Scholes Model: Introduction, derivation and purpose. Implied volatility. Assumptions of the Model. Volatility smiles
- The Greek Letters, Risk and Derivatives: Derivation of the Greeks, hedging, portfolio insurance. Value at Risk (VaR) and regulatory Capital, calculation of VaR.

Teaching methods

Delivery type	Number	Length hours	Student hours
Lecture	11	2.00	22.00
Seminar	5	1.00	5.00
Private study hours			123.00
Total Contact hours			27.00
Total hours (100hr per 10 credits)			150.00

Private study

This could include a variety of activities, such as reading, watching videos, question practice and exam preparation.

Opportunities for Formative Feedback

Students receive feedback through: (i) a number of MCQ tests on Minerva during the module and (ii) worksheets provided as the basis for discussion in seminars with feedback provided during the seminar and outline answers provided after the seminars.

Methods of assessment

Exams

Exam type	Exam duration	% of formal assessment
Standard exam (closed essays, MCQs etc)	2 hr	100.00
Total percentage (Assessment Exams)		100.00

The resit for this module will be 100% by 2 hours examination.

Reading list

The reading list is available from the Library website

Last updated: 16/08/2024 11:44:41

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