• University of Exeter Business School
• Module

Futures and Options

Module description

Summary:

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:

Internationalisation

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

Employability

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

Module aims - intentions of the module

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.

Intended Learning Outcomes (ILOs)

ILO: Module-specific skills

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

• 1. explain 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

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

• 4. critically evaluate the application of economic theories to the use of futures and options.
• 5. explain the role and use of futures and options as risk management instruments
• 6. explain the role of hedging strategies as a means of managing risk
• 7. explain and apply the principles of pricing option contracts

ILO: Personal and key skills

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

• 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

Syllabus plan

Topics covered:

• Mechanics of Futures Markets
• Determination of Forward and Future Prices
• Hedging Strategies Using Futures
• Interest Rates
• Mechanics of Options Markets
• Trading Strategies Involving Options
• Binomial Trees
• The Black-Scholes formula
• The Greek Letters
• Volatility Smiles

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

Details of learning activities and teaching methods

Formative assessment

Summative assessment (% of credit)

Details of summative assessment

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

Indicative learning resources - Basic reading

Basic reading:

Hull, J. (2014), The Fundamentals of Futures and Options Markets, 8th edition, Pearson

Key words search

Futures, Options