Futures and Options

Module description


This module will cover the basic properties, pricing and hedging of futures/forwards, options, swaps and other derivatives traded on financial markets, together with the working mechanism of the derivative markets. The module provides analytical and numerical methods to price derivatives contracts. The module covers the use of derivatives in hedging and managing financial risk but also their limitations in connection with stock market crashes and 2007 financial crises. 

Additional Information:


This module covers a wide range of topics providing necessary tools and knowledge applicable to international financial markets.


In this module, students acquire confidence and basic skills necessary for working in finance industry worldwide.

Full module specification

Module title:Futures and Options
Module code:BEE3032
Module level:3
Academic year:2016/7
Module lecturers:
  • Dr Julian Neira Sanchez - Convenor
Module credit:15
ECTS value:



Microeconomics BEE2025 and Macroeconomics BEE2026 or Economics Principles and Policy BEE2024



Duration of module: Duration (weeks) - term 2:


Module aims

The aim of the module is to provide an in-depth study of the use of futures and options with particular reference to the risk management and hedging. Both from a theoretical and empirical perspective the module will also cover in detail why futures and options are used, the mechanics of using futures and options, the economic benefits of using futures and options as risk management instruments and the pricing of futures and option contracts. The material covered here will be relevant to understand and critically evaluate the use of futures and options in different markets.

ILO: Module-specific skills

  • 1. understand the role of derivatives markets and alternative derivative contracts for managing risk
  • 2. be familiar with the pricing of futures and options contracts
  • 3. appreciate the use of hedging strategies with futures and options

ILO: Discipline-specific skills

  • 4. have a solid understanding and ability to critically evaluate the application of the economic theory to the use of futures and options.
  • 5. understand the role and use of futures and options as risk management instruments
  • 6. understand the role of hedging strategies as a means of managing risk
  • 7. understand the principles of pricing option contracts

ILO: Personal and key skills

  • 8. develop the ability to analyse a wide range of commodity and financial market issues arising with the use of futures and options in the context of risk management
  • 9. be able to interpret the use of statistical techniques in testing economic theory, and to discuss economic issues associated with the use of risk management instruments

Learning activities and teaching methods (given in hours of study time)

Scheduled Learning and Teaching ActivitiesGuided independent studyPlacement / study abroad

Details of learning activities and teaching methods

CategoryHours of study timeDescription
Schedules learning and teaching20Lectures

Formative assessment

Form of assessmentSize of the assessment (eg length / duration)ILOs assessedFeedback method
Exercises2 hours each1-9Written or oral feedback

Summative assessment (% of credit)

CourseworkWritten examsPractical exams

Details of summative assessment

Form of assessment% of creditSize of the assessment (eg length / duration)ILOs assessedFeedback method
Online quizzes1010 minutes1-9On ELE and oral
Final Exam902 hours1-9Written

Details of re-assessment (where required by referral or deferral)

Original form of assessmentForm of re-assessmentILOs re-assessedTimescale for re-assessment
Examination and online quizzesExamination 100% (2 hours)1-9August examination period

Syllabus plan

Topics covered:

  • Introduction to Derivatives and their role in Risk Management
  • Mechanics of Futures Markets
  • Hedging Strategies Using Futures
  • Interest Rates
  • Swaps
  • Determination of Forward and Future Prices
  • Mechanics of Options Markets
  • Options and Risk Neutral Pricing (Binomial Tree)
  • The Black-Scholes formula
  • Market-Making and Delta-Hedging

Indicative learning resources - Basic reading

Basic reading:

Hull, J. (2011), The Fundamentals of Futures and Options Markets, 7th edition, Prentice Hall

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