BSc Management (Marketing) with Industrial/Professional Experience / Course details

The course covers the essential properties and institutional trading feature and hedging applications of certain basic derivative instruments, namely forwards, futures and options, as well as the binomial option pricing model. The examples are often taken from foreign exchange and equity market instruments although the valuation principles are applied to all derivative instruments. The option part includes the modelling of asset prices and the Black-Scholes option pricing model. Hedging issues are discussed together with the Greeks, or the partial derivatives of option prices. The course finishes with some extensions of Black-Scholes and discussions on volatility smile.

BMAN23000A or B or BMAN20242 is a Pre-Requisite of BMAN 30091.

Pre-requisite course units have to be passed by 40% or above at the first attempt unless a higher percentage is indicated within this course outline. If the pre-requisite unit is defined as a compulsory course unit within your programme of study (Maths with Finance, IBFE, Accounting, BA Econ pathways for example) then progression onto the dependent unit is permitted as long as you have gained the appropriate amount of credit to progress on to the following year of your registered undergraduate programme.

Pre-requisites (It is preferred that students have a pass mark of 50% or higher in the pre-requisite courses listed below for Financial Derivatives):

BMAN23000(A) or (B) Foundations of Finance or BMAN20242 Introduction to Corporate Finance and Financial Instruments for BSc Actuarial Science and Maths students.

It is strongly recommended that students wanting to take BMAN30242 Financial Engineering in Semester 2 take BMAN30091 Financial Derivatives in Semester 1.
 

The course aims to describe, analyse and evaluate the characteristics of some of the most important financial derivative instruments, namely forwards, futures and options, written mostly on currency and equity products. This course equips students with some essential techniques to be applied when valuing these financial derivatives and hedging the associated financial market risk exposures. In particular, it emphasizes the general principles central to derivatives valuation including no-arbitrage arguments and risk-neutral valuation methods, together with their implications for the pricing of the selected classes of financial derivatives and the impact of credit risks. The course also analyses the asset price dynamics that are important in deriving both the binomial and Black-Scholes option pricing models and pricing other more complex derivative instruments. Successful completion of this course and BMAN30242 Financial Engineering provides the basic analytical foundations for students wishing to pursue a career in financial markets and investment banking that require knowledge of currency, equity and interest rate risk management, corporate treasury management and derivatives trading, The companion course, BMAN30242 Financial Engineering has as its major focus interest rate derivative instruments, including forward rate arrangements (FRAs) and interest rate swaps.

On completion of this course unit successful students should:

- be familiar with the characteristics of the relevant financial derivative instruments

- understand how financial derivatives are valued based on no arbitrage pricing arguments and risk-neutral valuation methods

- understand how the instruments covered can be used to implement basic market risk management strategies, appropriate for corporate applications

- be able to solve basic problems requiring the ability to price derivative instruments and hedge market risk based on numerical data and current market conventions

- have acquired the basic skills required for pricing financial derivatives, including familiarity with some central techniques, namely risk-neutral valuation, no-arbitrage pricing, the binomial model, and the Black-Scholes model

- be able to exercise basic quantitative and mathematical skills in pricing derivative instruments and make adjustments for credit risks

- be able to exercise a capacity for independent and self-managed learning
 

Lectures: 2 hours per week
[20 hours of lectures (10X2) + 6 workshops of 1 hour duration = 26 hours total]

Full details will be provided in the course outline at the start of the course.

Total study hours: 100 hours split between lectures, workshops, reading, self-study and preparation for classes, coursework and examinations.
Informal Contact Methods
1. Office Hours
2. Online Learning Activities (blogs, discussions, self assessment questions)
3. Drop in Surgeries (extra help sessions for students on material they may be struggling with) - Clinic sessions just before exam.
 

Coursework based on an unseen test (30%)
Examination (70%)

- Informal advice and discussion during lectures and workshops

- Responses to student emails and questions from a member of staff including feedback provided to a group via an online discussion forum.

- Non-summative mini-test based on multiple choice questions at the end of the term. This aims to give feedback on how well students are prepared for the final exam.

- Generic feedback posted on Blackboard regarding overall examination performance.
 

John Hull, Options, Futures and Other Derivatives: Global edition, 9/E, ISBN-10: 1292212896, ISBN-13: 9781292212890, Pearson Higher Education.

You are strongly recommended to buy the core text or at least make sure you have access to a copy.

Suggested reference texts are:
Jarrow Robert A. and Arkadev Chatterjea (2013) An Introduction to Derivative Securities, Financial Markets, and Risk Management, W. W. Norton & Company.
 

Length of course: 8 weeks lectures + 2 weeks of revision.
Co-requisites: None
Dependent course units: None
Programme Restrictions: There are no programme restrictions for this course providing the pre-requisites listed above are met.

BMAN30091 is available to study abroad and exchange students admitted through the University of Manchester International Programmes Office.

For Academic Year: 2024/25

Updated: March 2024