DERIVATIVES MARKETS - 2020/1

Module Overview

The module introduces the workings of financial and commodity derivatives markets and securities. Securities such as forwards, futures, swaps and options have been traded on organised exchanges, as well as ‘over the counter’, for decades. Financial markets are innovative and new derivative instruments are frequently introduced to facilitate risk-hedging or speculative investor operations. Financial innovation can, however, bring about its own significant risks, as the link between securitisation and the credit crisis of 2007 showed. The emphasis of this module is on the pricing of derivative securities, as well as their uses for relevant investment functions, including hedging and speculation. Regulatory issues emanating from the 2007 crisis are also discussed.

Module provider

Economics

Module Leader

MANDILARAS Alexandros (Economics)

Number of Credits: 15

ECTS Credits: 7.5

Framework: FHEQ Level 6

Module cap (Maximum number of students): N/A

Module Availability

Semester 1

Prerequisites / Co-requisites

None

Module content

Indicative content includes:

• Mechanics of futures markets


• Hedging strategies using futures


• Interest rates


• Forward and futures prices


• Securitisation and the credit crisis of 2007


• Swaps


• Mechanics of options markets


• Properties of stock options


• Trading strategies using options


• Binomial trees of option pricing


• Wiener Processes and the Black-Scholes model


• The 'Greek' letters

Assessment pattern

Alternative Assessment

Not applicable.

Assessment Strategy

The assessment strategy is designed to provide students with the opportunity to demonstrate that they have achieved the module’s learning outcomes.

Thus, the summative assessment for this module consists of:

• An in-semester test normally held in week 4 (worth 10% of the final module mark); a second in-semester test normally held in week 7 (worth 20%); and a final examination (worth 70% of the final module mark).


• In-semester test 1 usually covers forward and futures contracts (including hedging and speculating).


• In-semester test 2 usually covers swaps, the mechanics and properties of options markets, as well as option trading strategies.


• The final two-hour examination consists of four multi-part questions, two of which should be answered. It is designed to reflect the learning outcomes and enables students to display both problem-solving skills and the ability to discern, apply, differentiate and analyse the material.

Formative assessment and feedback

Students are supported in their preparation for the summative assessments and receive various forms of feedback. On the former, they are provided with the solutions to the last three years’ in-semester tests and the last three years’ final examination papers. On the latter, feedback is made available through SurreyLearn once coursework marks are released, normally within two weeks. This includes comments on student performance and advice on how to improve, where appropriate. Finally, students are invited to visit the lecturer during dedicated ‘feedback slots’ and discuss their learning on a one-to-one basis.

Module aims

• Equip students with the factual, conceptual and procedural knowledge necessary to facilitate a deep understanding of financial and commodity derivatives markets and the securities traded on them.

Learning outcomes

Methods of Teaching / Learning

The learning and teaching strategy is designed to satisfy the module’s learning outcomes.

The learning and teaching methods include:

• 2-hour lecture per week × 11 weeks


• Lecturer-Student interaction through the University’s VLE (SurreyLearn)


• Q&As facilitated by electronic voting (PollEverywhere)

Indicated Lecture Hours (which may also include seminars, tutorials, workshops and other contact time) are approximate and may include in-class tests where one or more of these are an assessment on the module. In-class tests are scheduled/organised separately to taught content and will be published on to student personal timetables, where they apply to taken modules, as soon as they are finalised by central administration. This will usually be after the initial publication of the teaching timetable for the relevant semester.

Reading list

https://readinglists.surrey.ac.uk
Upon accessing the reading list, please search for the module using the module code: ECO3044

Programmes this module appears in

Please note that the information detailed within this record is accurate at the time of publishing and may be subject to change. This record contains information for the most up to date version of the programme / module for the 2020/1 academic year.