Module code: ACFI 3309
The module focuses on the major classes of derivatives; futures, forwards, options and swaps, and on the uses of these instruments in hedging, regulatory arbitrage, price discovery, arbitrage and speculation. It is the use of derivatives in these applications that explains the vast and continuing growth of derivatives markets worldwide.
The module starts at the beginning, covering the basic definitions, together with the basic regulatory and institutional background. After dealing with this core descriptive material, the two major strands of the module are developed, the theory and applications of derivatives products.
A substantial part of the module is devoted to the applications discussed above. The applications material is highly computational, and these computations, although routine, are complex. Sufficient time therefore, will be spent on this material so that a high degree of computational competence is achieved.
The theory of derivatives is mostly concerned with pricing models. Virtually all pricing models in derivatives are based on the conceptually simple, but very powerful no arbitrage condition. It is the power of the no arbitrage technique that explains why derivatives pricing models actually work in the real world, and the almost universal use of these models in practice. The module spends a considerable amount of time developing these theoretical underpinnings and their relevance to practical applications. Towards the end of the module a selection of more broad ranging issues are discussed concerning the impact of derivatives markets on society as a whole, including systemic risk, regulatory arbitrage, and financial scandals.
Contact hours per student per year
- Lectures: 22 hours
- Tutorials: 22 hours