module specification

This module gives students the opportunity to study major exchange-based and over-the-counter financial derivatives, their pricing theories, the concept of financial risk, its measurement and management using financial derivatives.

The aims of this module are

• to provide students with a technical understanding of the advantages and disadvantages of major exchange-based and over-the-counter financial derivatives.
• to discuss the theory and practice of pricing derivative securities and hedging derivative securities.
• to evaluate the financial risks, their measurement and management using financial derivatives.
• to give students some practical experience of the methods used in risk management.

Students will use live financial data for understanding and trading of financial derivatives for risk hedging and management. These include forwards, futures, different types of options and swaps, in particular trading and analysing interest rate derivatives, foreign exchange rate derivatives, equity and equity index derivatives from the point of view of industry practitioners. The module will emphasise how derivatives are used in managing financial risk such as interest rate risk, foreign exchange rate risk, equity and equity index investment risk and credit risk.

Note: If there are not sufficient student numbers to make a module viable, the School reserves the right to cancel such a module. If the School cancels a module it will use its reasonable endeavours to provide a suitable alternative.

N/A

Financial derivatives: forwards, futures, options and swaps, their operational characteristics and basic underlying principles upon which they are valued.  LO1

Risks and risk management: Identifying risk exposure, information ratios, types of risks (including credit risk and market risks such as interest rate risk and currency risk), and techniques for risk management. LO2

Managing interest rate: hedging interest rate movements, bond price sensitivity, short-term interest rate futures, futures, options and swaps of bonds. LO3

Managing equity portfolio risk: application of various derivatives in the mitigation of equity risk. LO3

Managing currency risk: in-depth consideration of financial instruments and derivatives available for managing exposure to foreign exchange risk. LO4

Risk management models: Black and Scholes model, Greek letters, volatility, value at risk. LO4

This module will be delivered by lectures and seminars. The lectures will outline the key concepts and knowledge of derivatives and their application for risk management for global firms.

The seminars will be used for students to solve practical problems and discuss relevant topical issues. The Bloomberg facility will be used in teaching sessions to provide access to the use of real data on a range of derivatives and their underlying assets, understand information displayed on Bloomberg terminals such as contract specifications for trading of those financial instruments and derivatives. Students will be provided with information sheets for weekly seminar exercises including instructions for the use of Bloomberg Terminals as well as with tutorial questions to apply knowledge obtained to practical questions for financial risk management.

On successful completion of this module students  will be able to:

1. demonstrate a conceptual and practical understanding of the operational characteristics of the principles of financial derivatives.
2. identify risk exposure to different types of financial risk.
3. critically evaluate and measure the financial risks such as market risk and credit risk to a global firm.
4. analyse a global firm’s exposure to financial risk and apply the appropriate financial derivatives to mitigate the identified risk.

This module will be assessed by coursework and a final examination. Students will be expected to demonstrate wide reading, in depth knowledge, critical understanding of theoretical, empirical and policy issues, and ability to present their work in a professional manner.

The coursework will be a combination of practical questions to assess students’ learning progress and their engagement with the module. It will examine the teaching contents delivered in the first six weeks including the practical questions and use of Bloomberg Terminal for trading and analysing financial derivatives to meet learning outcomes 1 and 2.

The final examination will examine the students’ knowledge of financial derivatives and techniques for financial risk management and meet learning outcomes 3 and 4 of this module.

Students will receive detailed on-going feedback on their preparation for the coursework and the final examination.

Summative feedback for the coursework is provided in line with the university regulations.

Reading List Talis Link:

https://bblearn.londonmet.ac.uk/webapps/blackboard/content/launchLink.jsp?course_id=_43470_1&tool_id=_2924_1&tool_type=TOOL&mode=cpview&mode=reset

CORE TEXT

Chance, D. and Brooks, R. (2015), An Introduction to Derivatives and Risk Management, 10th Edition, Cengage Learning, Boston

OTHER TEXTS

Back, K. (2005), A Course in Derivative Securities: Introduction to Theory and Computation, Springer, Berlin

Chapman, R. J. (2011) Simple Tools and Techniques for Enterprise Risk Management, 2nd Edition, John Wiley and Sons, Ltd., West Sussex

Dubofsky, D. and Miller, T.  (2002), Derivatives: Valuation and Risk Management, Oxford University Press, Oxford

Hull, J. (2017), Options, Futures and Other Derivatives, 9th Edition, Pearson Education

Wilmott, P. (2006), Paul Wilmott on Quantitative Finance, Second Edition, John Wiley and Sons