Derivatives and Alternative Investments
This module is intended for Financial Services Degree Apprenticeship students who are looking to develop a sound knowledge in managing financial risk, exploiting investment opportunities and creating synthetic asset class exposure. The module introduces the basic principles of derivative pricing and the concept of arbitrage. Students should be able to demonstrate a working knowledge of the analysis of derivatives, including forwards, futures, options and swap. An overview of the widely used alternative investments, including hedge funds, private equity, real estate, commodities and infrastructure investment is examined with emphasis on their distinguishing characteristics, considerations for valuation, and potential benefits and risks. Similarities and differences with traditional investment – stocks and bonds - are also considered.
Full module specification
|Module title:||Derivatives and Alternative Investments|
|Duration of module:||
Duration (weeks) - term 1: |
This module builds the conceptual framework for understanding the basic derivatives and derivative markets. Essential features and valuation concepts for forward commitments, such as forwards, futures and swaps and contingent claims such as options are introduced. The purpose is to establish the foundations of derivative pricing on a basic conceptual level. The following topics are covered:
- How does the pricing of the underlying asset affect the pricing of derivatives?
- How are derivatives priced using the principle of arbitrage?
- How are the prices and values of forward contracts determined?
- How are future contracts priced differently form forward contracts?
- How are the prices and values of swaps determined?
- How are the prices and values of European options determined?
- How does American option pricing differ from European option pricing?
The module also introduces the basic characteristics and categories of alternative investments; general strategies of alternative investment portfolio managers; the role of alternative investments in a diversified portfolio; and investment structures used to provide access to alternative investments. You will be able to describe features of hedge funds, private equity, real estate, commodities, infrastructure, respectively, along with issues in calculating returns to and valuation of each. Other alternative investments and an overview of risk management, including potential benefits and risks, fee structures and due diligence of alternative investments, are presented.
ILO: Module-specific skills
- 1. Describe purposes of, and controversies related to, derivative markets
- 2. Explain arbitrage and the role it plays in determining prices and promoting market efficiency
- 3. Define forward contracts, futures contracts, options, swaps and credit derivatives and compare their basic characteristics
- 4. Explain how the concepts of arbitrage, replication and risk neutrality are used in pricing derivatives
- 5. Compare alternative investments with traditional investments
- 6. Describe issues in valuing and calculating returns on hedge funds, private equity, real estate, commodities and infrastructure
- 7. Evaluate risk management of alternative investments
ILO: Discipline-specific skills
- 8. Identify potential benefits of alternative investments in the context of portfolio management
- 9. Recognise the practice of risk management as a dynamic and ongoing process
- 10. Apply trading and risk management tools under supervision in real-world context
ILO: Personal and key skills
- 11. Understand the impact the external environment has on Financial Services as appropriate to their role, together with relevant best practice.
- 12. Demonstrate a sound understanding of the relevant Financial Service products and services offered to clients/customers by their organisation
- 13. Deliver technical advice to clients/customers and implement product solutions
Learning activities and teaching methods (given in hours of study time)
|Scheduled Learning and Teaching Activities||Guided independent study||Placement / study abroad|
Details of learning activities and teaching methods
|Category||Hours of study time||Description|
|Scheduled Learning & Teaching Activities||14 hours (2 days)||Workshops|
|Scheduled Learning & Teaching activities||14 hours||Online lectures and seminars|
|Scheduled Learning & Teaching activities||6 hours||Revision|
|Guided independent study||116 hours||Reading and research, web-based activities|
|Form of assessment||Size of the assessment (eg length / duration)||ILOs assessed||Feedback method|
|Mock Exam||1.5 hour exam||1-7||Marks and feedback|
|Online Discussion||Online discussion contributions||1-13||Online discussion feedback from peers and lecturer|
|Weekly online practices||Six exercises||1-10||Correct answers on ELE|
Summative assessment (% of credit)
|Coursework||Written exams||Practical exams|
Details of summative assessment
|Form of assessment||% of credit||Size of the assessment (eg length / duration)||ILOs assessed||Feedback method|
|Exam||50||1.5 hour written exam||1-7||Marks and feedback|
|Applied exercise/Assignment||50||2,000 words||1-13||Marks and feedback|
Details of re-assessment (where required by referral or deferral)
|Original form of assessment||Form of re-assessment||ILOs re-assessed||Timescale for re-assessment|
|Exam||1.5 hour written exam||1-7||In line with University regulations|
|Applied exercise/Assignment||Applied exercise/Assignment 2,000 words||1-13||In line with University regulations|
Defer – as first time
Refer – capped at 40%
- Derivative Markets and Instruments
- Fundamental Concepts of Derivative Pricing
- Pricing and Valuation of Forward Commitments
- Pricing and Valuation of Options
- Alternative Investments: Hedge Funds, Private Equity, Real Estate, Commodities, Infrastructure
- Risk Management Overview
Indicative learning resources - Basic reading
- Derivatives and Alternative Investments, CFA® Program Curriculum Level I Volume 6, CFA Institute.
- Hull, J.C. (2018), Options, Futures, and Other Derivatives, 10th ed., Pearson.
Module has an active ELE page?
Last revision date