Also refer to the MCom + MIB Student Guide

Description

This unit aims to provide students with knowledge and understanding of the principles and techniques underlying theory and practice in Derivative Markets. You will learn about different modelling techniques and will need to understand the usefulness and shortcomings of these techniques when applied in practice. It primarily aims to give you the tools for quantitative analysis of transactions and securities including valuation, hedging and risk management for derivative securities.

The unit also aims to give instruction in numerical implementation of derivative pricing models using excel spreadsheet software, and to assist in understanding the mathematical and statistical methods used in the analysis of derivatives. It should assist you to develop an ability to analyse practical problems in the Financial Derivatives and Capital Markets area. In practice, the decision to invest in an investment project, a security, or a complex derivative will not be clear cut and it will always be necessary to make decisions based on competent analysis and an element of judgement.

Note: This unit will cover the syllabus of module 3 of the specialist examinations in investment and finance of the Institute of Actuaries of Australia.

Topics

• Forwards, Futures and Swaps
• Bond Pricing and interest rates
• Options - basic concepts and trading strategies
• The uses and users of derivatives, derivative markets and products
• Options - models for prices and returns and the Black Scholes approach
• Hedging and Portfolio Insurance
• Other Models: - Alternatives to Black Scholes
• General Approach to Valuation
• Numerical Procedures
• Interest Rate Derivatives
• Exotic Options
• Measurement of Market and Credit Risk, Capital Adequacy and Accounting for Derivatives