DERIVATIVES SECURITIES - 2024/5
Module code: MANM137
This module is targeted at students interested in understanding the pricing of derivative securities, specifically options. Applications are used to reinforce a rigorous development of arbitrage theory that underpins the pricing of derivative securities.
Surrey Business School
WOJAKOWSKI Rafal (SBS)
Number of Credits: 15
ECTS Credits: 7.5
Framework: FHEQ Level 7
JACs code: N300
Module cap (Maximum number of students): N/A
Overall student workload
Independent Learning Hours: 84
Lecture Hours: 22
Seminar Hours: 11
Guided Learning: 11
Captured Content: 22
Prerequisites / Co-requisites
Indicative content includes:
- Pricing Forward and Futures contracts
- Introduction to options contracts
- Discrete time finance: Pricing European options using binomial trees
- Pricing options on stock indices and currencies using binomial trees
- Pricing American options and other path-dependent derivatives on binomial trees
- Introduction to continuous time finance: The Black-Scholes Model as the limiting case of the binomial model
- Monte-Carlo pricing techniques
- Option pricing via numerical solutions of Partial Differential Equations
- Environmental, Social and Governance (ESG) criteria derivatives (“green derivatives”)
|Assessment type||Unit of assessment||Weighting|
|Online Scheduled Summative Class Test||MIDTERM TEST ONLINE OPEN-BOOK WITHIN 4HR PERIOD (60 min)||30|
|Examination Online||FINAL EXAM: ONLINE OPEN-BOOK WITHIN 4HR PERIOD||70|
The assessment strategy is designed to provide students with the opportunity to demonstrate proficiency in applying pricing techniques:
Preparing and discussing solutions to numerical problems on weekly basis will facilitate acquisition of skills necessary to approach the test and the final examination, where solving numerical exercises and word problems involving appropriate pricing techniques will be required.
Test feedback in the form of a summary score will provide students with a measure of learning success and expectation of subsequent performance on the final examination.
Final examination and overall module score will provide students with a final measure of learning success and performance.
Thus, the summative assessment for this module consists of:
- A test based on a mixture of numerical questions targeted at material covered in the seminars and multiple choice questions targeted at theoretical lecture material reinforces learning and provides summative feedback part way through the module.
- A final examination provides the main summative assessment.
Formative assessment and feedback
Seminars: Students will be asked to prepare short exercises distributed beforehand and discuss them in classroom. Verbal feedback and sample solutions will be provided.
Test: Overall score within the range 0% to 100% and individual feedback and comments if and where appropriate.
Final examination: Overall score within the range 0% to 100%.
- Provide a profound understanding of derivative securities including forwards, futures and options
- Provide the technical appreciation of the strengths and weakness of derivative pricing models
- Explore the quantitative nature of derivative markets
|001||Explain pure arbitrage theories and relate them to the pricing of all types of derivative securities including forwards, futures and options.||KC|
|002||Introduce various types of derivative securities and discuss the role each financial security can play in achieving financial objectives.||KCT|
|003||Be able to apply the binomial and continuous time pricing theory based on pure arbitrage||KCT|
|004||Be able to apply sophisticated numerical techniques to price derivative securities to achieve financial objectives||KCPT|
|005||Identify and interpret the complex incentives provided by financial derivatives and the consequences for financial markets, society and climate change.||KCPT|
C - Cognitive/analytical
K - Subject knowledge
T - Transferable skills
P - Professional/Practical skills
Methods of Teaching / Learning
The learning and teaching strategy is designed to allow students to come to grips with the essential quantitative nature of the subject, and importantly, to facilitate the application of theory to pricing problems.
The learning and teaching methods include:
- Formal lectures to impart theory.
- Demonstrations in seminars to solve numerical exercises to reinforce and test learning and to facilitate application of theory.
- Use of guided learning to facilitate teaching, enhance the learning outcomes and direct students to information sources and to the relevant reading in the set textbooks and in journal articles.
- Independent Learning to read the corresponding textbook chapters, research papers and web based articles and become familiar with lecture slides and solve exercises before attending lectures and seminars, as well as complementing these after the material has been summarized whenever understanding curriculum requires more readings and solving exercises.
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.
Upon accessing the reading list, please search for the module using the module code: MANM137
Employability: Pricing and interpreting option prices is a key function in all sectors of the derivatives industry, traditionally including trading and corporate risk management, as well as underpinning valuations in mergers, acquisitions, real estate, banking, energy, investments, leasing, cryptocurrencies, fintech etc. Because derivatives pricing must be deployed using appropriate mathematical and numerical techniques, students acquire the necessary theoretical and practical backgrounds to be able to model how derivatives prices are established in financial markets and how they vary across products with different cash flow structures. These skills are essential for students wishing to become practitioners in this field.
Sustainability: The module covers the potential impact of derivatives on society and climate change. This develops the students' ability to understand complex real-world problems and adjust the existing models to incorporate sustainable features.
Digital Capabilities: Hands-on experience with Mathematica and Excel Visual Basic for Applications (VBA) further gives the students transferrable skills, such as structuring the thoughts in a logical way and coding, and which can be applied in various professional careers.
Global and Cultural Capabilities: The module provides students with explanations of the diverse international contexts in which derivatives pricing problems arise. Short international study trips, if available, may further enhance the understanding of the various aspects of derivatives’ deployment on the global stage to a self-selected group of students.
Resourcefulness and Resilience: Achieving resourcefulness and resilience in a comprehensive option pricing task, integrating complex quantitative and practical skills, will be an integral part of the assessment of the module.
Programmes this module appears in
|International Corporate Finance MSc||2||Optional||A weighted aggregate mark of 50% is required to pass the module|
|Accounting and Finance MSc||2||Optional||A weighted aggregate mark of 50% is required to pass the module|
|Investment Management MSc||2||Compulsory||A weighted aggregate mark of 50% is required to pass the module|
|International Financial Management MSc||2||Optional||A weighted aggregate mark of 50% is required to pass the module|
|Economics and Finance MSc||2||Optional||A weighted aggregate mark of 50% is required to pass the module|
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 2024/5 academic year.