MODULE OUTLINE

The module provides students with a thorough background in the key derivative instruments (forwards, futures, options and swaps) and how businesses can practically apply them to manage different risks in their organisation. The module assumes no prior knowledge of derivatives, but by the end of the module students will have covered a wide array of everyday risks faced by businesses including interest rate risk and commodity price risk. Case studies will be used throughout the module to support student learning on the application of derivatives to manage risks.


MODULE AIMS

This module is designed to allow students to:

1) appreciate how derivative financial contracts can be used to manage everyday global business risks;
2) apply the techniques taught to everyday business contexts;
3) understand the wider implications of the global growth in derivatives.


LEARNING OUTCOMES

On completion of this module students should:
1) have a complex understanding of the mechanics of derivatives markets (forwards, futures, options and swaps markets) and their relevance to everyday business operations;
2) be able to determine and evaluate how derivatives contracts are priced and traded;
3) be able to systematically apply different derivative trading strategies to hedge common business risks.


TEACHING MODE

The module consists of ten three hour sessions spread over five weeks that are delivered in the Spring term. Students will be encouraged to engage in participative learning, presentations and intensive group work.



MODULE SYLLABUS
An outline lecture schedule for this module would be:

Week 1 session 1: Introduction to forwards and futures
Cuthbertson and Nitzsche, Chapters 1 and 2.
Hull, Chapters 1 and 2.

Week 1 session 2: Applying forwards and futures to manage business risks
Cuthbertson and Nitzsche, Chapters 3, 4 and 5.
Hull, Chapters 3 and 5.
Case Study material.

Week 2 session 1: Introduction to options
Cuthbertson and Nitzsche, Chapter 7.
Hull, chapter 8.

Week 2 session 2: Options pricing models
Cuthbertson and Nitzsche, Chapter 8.
Hull, chapter 11.

Week 3 session 1: Options pricing models
Cuthbertson and Nitzsche, Chapter 8.
Hull, chapter 13.

Week 3 session 2: Applying options to manage business risks
Cuthbertson and Nitzsche, Chapters 10 and 11.
Hull, Chapter 10.
Case Study material

Week 4 session 1: Introduction to swaps
Cuthbertson and Nitzsche, Chapter 14.
Hull, chapter 7

Week 4 session 2: Using swaps to manage business risks
Cuthbertson and Nitzsche, Chapter 14.
Case Study material

Week 5 sessions 1 & 2: Commodity derivatives
Hull, Chapter 5.
Case Study material