Essex Business School
Postgraduate: Level 7
Monday 13 January 2020
Friday 20 March 2020
07 January 2020
Requisites for this module
MSC N30012 Finance,
MSC N34212 Financial Engineering and Risk Management,
MSC N30112 International Finance,
MSC N35112 Finance and Global Trading,
PHD N30048 Finance
This module focuses on the pricing of financial derivatives and their use for hedging financial risks. We start with the basics of two of the most important derivatives, futures and options. This is followed by an extensive analysis of the most widely used option pricing models, the Black-Scholes model and the binomial model and various numerical techniques for pricing financial derivatives.
Futures and options are then utilised in the context of hedging financial risks. By relaxing the rigid assumptions underlying the Black-Scholes formula, alternative option pricing models are presented. Students will be provided with computer exercises that will illustrate the practical implementation of the models introduced in the module.
The aim of this module is to provide students with an understanding of the pricing of financial derivatives and their use in hedging financial risks.
On successful completion of the module, students will be able to:
1. Understand the main types of derivatives and how they can be used to hedge risks;
2. Devise trading strategies and arbitrage strategies with derivative securities;
3. Understand the main concepts and methodologies underlying financial option pricing;
4. Understand extensions to the Black and Scholes option pricing model
By studying the way derivatives work and the theoretical foundations of some widely employed pricing models students will be able to understand the assumptions used by these models and critically analyse them. This will allow students to appreciate the usefulness/weakness of these models, and understand why sometimes they work/fail in practice. This type of knowledge is particularly useful in areas such as investment banking and asset management.
No additional information available.
Weekly lectures and classes. There are also computer labs to consolidate and apply the knowledge obtained. Lecture notes will be uploaded to Moodle. Students are expected to read the relevant material and prepare ahead of the lectures. It is also strongly recommended that students read the additional material to supplement the lectures. Students should be aware that this module relies heavily on quantitative methods.
- Hull, John. (2018) Options, futures, and other derivatives, New York: Pearson Education.
The above list is indicative of the essential reading for the course. The library makes provision for all reading list items, with digital provision where possible, and these resources are shared between students. Further reading can be obtained from this module's reading list.
Assessment items, weightings and deadlines
|Coursework / exam
||120 minutes during Summer (Main Period) (Main)
Module supervisor and teaching staff
Dr Luiz Vitiello, email: email@example.com.
Dr Luiz Vitiello
Dr Nikolaos Papanikolaou
Senior Lecturer in Accounting & Finance
Available via Moodle
Of 40 hours, 32 (80%) hours available to students:
8 hours not recorded due to service coverage or fault;
0 hours not recorded due to opt-out by lecturer(s).
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