This module is concerned with International Investment Banks' products and strategies that involve the description and analyses of the characteristics of more commonly used financial derivative instruments such as forward and future contracts, swaps, and options involving commodities, interest, and equities markets. Modern financial techniques are used to value financial derivatives. The main emphasis of the module is on how International Investment Banks value, replicate, and arbitrage the financial instruments and how they encourage their clients to use derivative products to implement risk management strategies in the context of corporate applications.
In particular, students will first cover the topics related to forward, futures. They will then be introduced to options and various strategies thereof. Valuing options using Black-Scholes model and binomial trees is also an important part of the module. The important finance concepts of no-arbitrage and risk-neutral valuation and their implications for pricing financial derivatives are also covered in the module. This will help students to learn the techniques used in valuing financial derivatives and hedging risk exposure.
Private study hours: 116
Total contact hours: 34
Total study hours: 150
Main assessment methods:
VLE test 1 (15%)
VLE test 2 (15%)
Examination – 2 hour closed book (70%)
Reassessment methods:
100% Exam
The intended subject specific learning outcomes.
On successfully completing the module students will be able to:
- Demonstrate in depth knowledge and understanding of various financial derivative instruments and risk management techniques in the context of International Investment Banking.
- Demonstrate knowledge and understanding of complex concepts and principles under which financial derivative instruments are traded.
- Use subject knowledge to critically analyse the problem and provide a reasoned response to that problem in the context of risk management.
- Compare and contrast complex risk management strategies and prepare appropriate payoff diagrams to reflect various trading strategies.
The intended generic learning outcomes.
On successfully completing the module students will be able to:
- Apply numeracy skills to solve complex numerical problems.
- Develop and define complex argument and provide critical insights on the use of financial instruments and risk management.
- Read and critically summarise transactions and economic events related to financial management and derivative securities.
- Use information technology to acquire, systematically analyse, and communicate effectively.
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