module specification

The aims of this module are to provide students with the use of a wide range and in-depth knowledge of the major exchange-traded and over-the-counter traded financial instruments to construct financial products and manage financial risk.

The module discusses the characteristics, pricing and valuation, terminologies and application of financial innovation to create the structured products in derivative markets.

Students will further develop an understanding of the use of the financial instruments as investment vehicles, hedging tools, arbitrage mechanisms, and speculative instruments. Students will further develop skills for data collection and analysis utilising software systems such as Bloomberg and spreadsheets.

A blended teaching and learning approach includes the use of websites, videos, guest talks from industry and support for employability enhancing classroom activities.
Bloomberg may be used to deliver teaching sessions.

Skills of Financial Engineering: Knowledge of financial instruments, financial theories, laws and regulations, computer software - LO1

Option strategies and exotic options: Option strategies with market movements, exotic options, dynamic hedging written options. - LO1

Structured products: Capital guaranteed structured products,
Participation structured products, yield enhancement and participation notes, range accrual structured products, basket options, equity index linked guaranteed - LO2

Credit Derivatives: Credit default swap, credit options, collateralised debt obligations (CDOs), total return swaps.- LO2

Securitisation: Mortgage Backed Securities - LO2

Risk and risk measures: Types of risk, risk models and Value at Risk as risk measures. - LO3

Teaching is structured by lectures and seminars around three hours of weekly contact time with the students.

Lectures: A 2-hour lecture per week, which serves as a vehicle for introducing the principles of constructing financial products, giving examples of the instruments being discussed, analyse the risk and return characteristics of structured products, utilise numerical research, critical and analytical skills to solve problems and make practical decisions.

Seminars: Each lecture is supported by a 1-hour seminar, which provide students an opportunity to consolidate their understanding by working through examples based on current real-world data from various sources, for example, Bloomberg, the Financial Times and the Wall Street Journal. The merits of each type of instrument will be explored and students will work through and analyse additional examples.

Both lectures and seminars will draw on real-world financial data and case studies wherever possible. Data may be derived from published sources such as the Financial Times and Bloomberg.  Trading contract specifications from major derivative exchanges will be used where appropriate. This approach will enable students to appraise financial market issues in a realistic context and develop their ability to think critically and to produce solutions.


Students will be encouraged to form study groups in order to carry out independent research into the background of the topics introduced in lectures, and to solve set problems. Teaching material may be supported by use of Bloomberg analytics.

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

1. Develop the skills that are needed to become a financial engineer, critically discuss the principles of constructing financial products, use options and other exchange-traded or OTC traded financial instruments to create financial products.
2. Evaluate types of structured products, analyse the risk and return characteristics of structured products, use knowledge and expertise in software systems such as Bloomberg, forecast the prices and payoff, identify exposure to risk, analyse and report on the risk associated with a variety of financing structures.
3. Explain the principles underlying value at risk, utilise numerical, research, critical and analytical skills to solve problems and make practical decisions.

Core Texts

Cuthbertson, K. and Nitzsche, D. (2001), Financial Engineering: Derivatives and Risk Management, Wiley.

Eales, B.A. and Choudhry, M., (2003). Derivative Instruments: a guide to theory and practice, Butterworth Heinemann.

Other Textbooks

Hull, J.C. (2017). Options, Futures and Other Derivatives, 10th Edition., Pearson Education

Steiner, R. (2012). Mastering Financial Calculations: a step-by-step guide to the mathematics of financial market instruments, 3rd Edition, Financial Times Prentice Hall

Data source:
Bloomberg and other sources


Internet Sources:
https://www.bloomberg.com/europe
https://derivatives.euronext.com/en
https://www.dmo.gov.uk/



Journals:
The Journal of Finance
The Journal of Economics and Finance

Media:
The Financial Times
The Wall Street Journal