This module is not currently running in 2024 to 2025.
This module introduces different financial derivative contracts available in the market, develops pricing techniques and risk management tools to manage risks associated with a portfolio of derivative contracts. Principle of no-arbitrage, or absence of risk-free arbitrage opportunities, is applied to determine prices of derivative contracts, within the framework of binomial tree and geometric Brownian motion models. Interest rate models and interest rate derivatives are discussed in detail. Credit risk models are introduced in the context of pricing defaultable bonds and credit derivatives. Outline syllabus includes: An introduction to derivatives, futures and forward, options and trading strategies, binomial tree model, Black-Scholes option pricing formula, Greeks and derivative risk management, numerical techniques, exotic options, interest rate models and interest rate derivatives, credit risk and credit derivatives.
This module will cover a number of syllabus items set out in Subject SP6 published by the Institute and Faculty of Actuaries. This is a dynamic syllabus, changing regularly to reflect current practice.
Standard Delivery
Total contact hours: 72
Private study hours: 228
Total study hours: 300
Tutorial Delivery
Total contact hours: 36
Private study hours: 264
Total study hours: 300
Teaching methods will differ according to the number of students registered on the module.
The standard format, for more than 6 students registered:
The module will be taught by means of 72 hours of lectures over two terms, including example classes, computer laboratory classes and presentations.
The tutorial format, for 6 students or less registered:
The module will be taught by means of 36 small group tutorials over two terms, including example classes, computer laboratory classes and presentations.
80% Examination, 20% Coursework
The following textbooks are recommended: JC Hull: Options, Futures and Other Derivatives 6th Edition (Prentice Hall) (E)
Baxter & Rennie: Financial Calculus (Cambridge University Press 1997) (E)
Study notes published by the Actuarial Education Company for Subject SP6.
See the library reading list for this module (Canterbury)
The intended subject specific learning outcomes. On successfully completing the module students will be able to:
1 Demonstrate knowledge and understanding of complex techniques applicable to solve problems in Derivative Securities in the context of current professional actuarial practice.
2 Demonstrate knowledge and understanding of complex current issues in Derivative Securities in the context of current professional actuarial practice.
3 Demonstrate a high level of understanding of the main body of knowledge for the module.
4 Demonstrate skill in calculation and manipulation of the material written within the module.
5 Apply a range of concepts and principles of Derivative Securities in various contexts.
6 Demonstrate skill in solving problems in Derivative Securities by various appropriate methods.
7 Demonstrate skills in the specific mathematical and statistical techniques used in the actuarial practice of Derivative Securities and their application to solving problems in that subject.
8 Demonstrate understanding of the current practical applications of the module material.
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