Skip to main content

University of Exeter Business School

Derivatives Pricing

Module titleDerivatives Pricing
Module codeBEAM035
Academic year2023/4
Module staff

Dr Stanley Gyoshev (Convenor)

Duration: Term123
Duration: Weeks


Number students taking module (anticipated)


Module description


This module aims to equip you with theoretical frameworks and numerical methods to evaluate credit instruments and financial derivative instruments in the bond, stock, equity, FX, and interest rate markets. It covers the analysis of the five distinct valuation methods, including Forwards, Futures, SWAPs, and options via Binomial Trees and Black-Scholes model. Fixed Income Instruments, securitisation techniques, and the numerical methods to price derivatives in the equity market will also be covered.

Prerequisite: The students are expected to have a good command of the University of Exeter Business School Approved Financial Calculator, MS Excel, and basic financial concepts such as NPV, Bond, and Stock Pricing.

Additional Information:


This module helps students build an online professional profile, allowing them to connect with former students and potential employers internationally in about 100 countries and hundreds of banks across the globe. In addition, many of the examples discussed throughout the module are based on American, European, and Asian markets.

External Engagement

The Chartered Financial Analyst Institute (CFA) accredits this module, and all of the content is based on the CFA level examination.


Mastery of this module's content will enable the students to develop intellectual sophistication in the areas of derivatives/fixed income pricing, financial engineering, and risk management. Derivatives and Fixed income mastery potentially open up an exciting range of career opportunities across multiple industries such as investment banks, hedge funds, consultancies, and insurance firms. As well as creating an online profile aimed at employers in about 100 countries and hundreds of banks across the globe, students also develop their understanding and evaluation of derivatives, financial engineering skills, and risk assessment skills.


All of the resources for this module are available on the ELE (Exeter Learning Environment).

Module aims - intentions of the module

The main goal of this module is to prepare the students for a quantitative finance career which includes (but is not limited to) trading, risk management, and structures in the areas of fixed income and derivatives. This module will be useful to prepare the student for the Derivatives Trader's profession and the hedging responsibility of the Financial Director.

Towards the end of the module, the students will understand the mechanisms, risks, and pricing techniques of various products such as forward and futures contracts, European and American options, bonds, swaps, interest rate derivatives, etc. While the treatments of topics are somewhat quantitatively oriented, the practical relevance of the module's content will be highlighted by real-world examples and case studies. The module examines a variety of distinct models from both theoretical and technical perspectives.

Intended Learning Outcomes (ILOs)

ILO: Module-specific skills

On successfully completing the module you will be able to...

  • 1. price various derivatives and credit instruments and critically evaluate their usefulness in risk reduction applications using MS Excel and Financial Calculators;
  • 2. price Forwards, Futures, and SWAPs;
  • 3. identify the forms of basic derivative contracts and essential hedging strategies;
  • 4. outline the theoretical background and implementation of the Binomial Option Pricing Model;
  • 5. apply the Black-Scholes model for option pricing and compare its relationship to the Binomial Option Pricing Model;
  • 6. price financial options using both analytical and numerical techniques;
  • 7. explain some popular interest rate option products and how they can be priced, including all kinds of fixed and variable SWAPs and other fixed-income instruments.

ILO: Discipline-specific skills

On successfully completing the module you will be able to...

  • 8. improve their mathematical finance knowledge and apply computational methods in pricing options, derivatives, and fixed income products;
  • 9. evaluate rigorous theoretical arguments based on mathematical and analytical reasoning;
  • 10. rigorously analyse problems in finance, especially derivatives and fixed income pricing;
  • 11. interpret financial data and problems in the light of established theories.

ILO: Personal and key skills

On successfully completing the module you will be able to...

  • 12. analyse critically problems arising in both academic and practical contexts;
  • 13. develop computing skills;
  • 14. plan and manage his/her own study;
  • 15. make appropriate use of learning resources, including sophisticated computer datasets;
  • 16. develop their interpersonal skills and group working through the LinkedIn assignment (formative);
  • 17. show competence in debate and discussion through active class participation (formative);
  • 18. access empirical research literature and critically appraise it (formative).

Syllabus plan

This module covers two broad areas – derivatives and fixed income:

• Forward Markets and Contracts
• Futures Markets and Contracts
• Option Markets and Contracts
• Swap Markets and Contracts
• Interest Rate Derivative Instruments
• Using credit derivatives to enhance return and manage risk via CDS (Credit Default Swaps)
• Valuing Bonds with Embedded Options
• Mortgage-Backed Sector of the Bond Market
• Europe's whole loan sales market burgeoning as the mortgage credit market comes of age
• Solving the Liquidity Conundrum

If time permits:

• Ethical Use of Derivatives and Fixed Income Instruments: Nassim Taleb and Daniel Kahneman: Reflection on a Crisis

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
Scheduled Learning & Teaching activities126 two-hour Q&A sessions (in weeks 1, 3, 5, 7, 9 & 11)
Scheduled Learning & Teaching activities10Tutorials (in weeks 1, 2, 3, 4, 5, 7, 8, 9 10 & 11)
Guided Independent Study128Reading prepared lectures in PDF, watching pre-recorded videos, solving problems in Excel, preparation for classes and assessments

Formative assessment

Form of assessmentSize of the assessment (eg length / duration)ILOs assessedFeedback method
Individual Project2 weeks16-18Verbal
Weekly excel spreadsheets1-3 hours1-15Verbal

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
9 Weekly quizzes (best five results)1040 minutes each1-15Verbal during Q&A sessions & automatic pre-programmed feedback from VLE
Final Exam9060 minutes1-15Automatic pre-programmed feedback from VLE

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

Original form of assessmentForm of re-assessmentILOs re-assessedTimescale for re-assessment
Weekly quizzes and Final Exam9 Weekly quizzes + Final exam (10% + 90%) (60 minutes) 1-15August Reassessment Period

Re-assessment notes

Students who fail the module overall or defer the final exam owing to mitigating circumstances will be re-assessed with a final exam during the August re-assessment period.

Students who miss a weekly quiz without legitimate reasons will be awarded a mark of zero for that quiz. Students who miss a weekly quiz with legitimate reasons will have that quiz set aside, with the students’ overall quiz results computed using the best five out of the remaining quizzes that the students take.

In the very unlikely event that a student is ill or affected by personal circumstances that potentially preclude them from undertaking five or more weekly quizzes, the student’s overall quiz result will be computed using a combination of the student’s weekly quiz results and proxy marks based on the student’s final exam. For example, if a student only manages to complete two weekly quizzes, their overall quiz result will be the average of the results of the two quizzes that they took and three proxy marks. The proxy marks used will be the student’s final exam result.

Indicative learning resources - Basic reading

  1. CFA Program Curriculum 2020 Level I Volumes 1-6 Box Set. CFA Institute. 
  2. CFA Program Curriculum 2020 Level II Volumes 1-6 Box Set. CFA Institute. 

Indicative learning resources - Web based and electronic resources

The following websites are worth exploring, particularly if you are new to the subject. Please understand that material from these must not be cut and pasted into assignments.  -- Chicago Board of Trade  -- Chicago Mercantile Exchange -- Options Clearing Corporation

Indicative learning resources - Other resources

Key words search

Derivative pricing, Credit Instruments, Fixed Income

Credit value15
Module ECTS


Module pre-requisites

BEAM031 Financial Instruments

Module co-requisites


NQF level (module)


Available as distance learning?


Origin date


Last revision date