This course provides a broad overview of the financial markets with different types of derivatives and securities. The emphasis is on the practical use of derivatives, involving the analysis of different methods of pricing and hedging. The lectures introduce the basic models for option pricing and hedging, computation of option Greeks, pricing of forward, futures and interest rates-based financial instruments. The computer lab sessions provide an opportunity for the students to implement the theoretical concepts and test their effectiveness in practice.

The course will be delivered in a blended format consisting of online (both asynchronous and synchronous) and some face to face elements, including theoretical and practical elements as well as labs. The course will consist of 5 main units.

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Intended Learning Outcomes

This course focuses on providing a broad overview of the financial markets with emphasis on pricing and hedging of different securities and derivatives. The issues related to trading of different financial instruments are discussed in detail and the option pricing methodology is taught using the basic market models such as the binomial model and Black-Scholes model. The course also teaches the construction of investment portfolios using interest rates-based instruments such as bonds and credit default swaps. Hedging techniques involving the computation of option Greeks are also covered. The practical implementation of many of the theoretical concepts is taught in the computer lab sessions using the Monte Carlo method.

By the end of this course, students will be able to:

1. analyse the effectiveness of different models used in the financial markets;

2. calculate the price and hedging portfolios of popular derivatives traded in the financial markets;

3. formulate investment portfolios using interest-rates based financial instruments.

4. work collaboratively in a group to produce a combined piece of coursework, by liaising with other class members, allocating tasks and co-ordinating group meetings.

Students must submit at least 75% by weight of the components (including examinations) of the course's summative assessment.