Financial Derivatives

BMAN30091 Financial Derivatives 10 Semester 1 Undergraduate Level 3 Ser-Huang Poon Unit coordinator Eirini Konstantinidi Unit coordinator Alliance Manchester Business School 1 FHEQ level (Framework for Higher Education Qualifications) ' Last part of a Bachelors ' European Credit Transfer & Accumulation System Rating : 5.0 Successful completion of this course and BMAN 30242 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 to this one, BMAN 30242 has as its major focus interest rate derivative instruments, including forward rate arrangements (FRAs) and interest rate swaps.  Successful completion of this course and BMAN 30242 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 to this one, BMAN 30242 has as its major focus interest rate derivative instruments, including forward rate arrangements (FRAs) and interest rate swaps.  The course aims to describe, analyse, and evaluate the characteristics of some of the most important financial derivative instruments, namely forwards, futures, and options. The fourth building block of modern financial engineering, financial swaps are covered extensively in BMAN 30242 in the second semester. 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.  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.  <ul><li>be familiar with the characteristics of the relevant financial derivative instruments and factors affecting their prices</li><li>understand how financial derivatives are valued based on no-arbitrage pricing arguments and risk-neutral valuation methods</li><li>understand how the instruments covered can be used to implement basic market risk management strategies, appropriate for corporate applications</li><li>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</li><li>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.</li><li>be able to exercise quantitative and numerical skills in pricing derivative instruments.  </li><li>understand the Greeks and use these for hedging purposes</li><li>discuss and calculate implied volatility</li><li>be familiar with the volatility smile/term structure/surface and implied distributions and explain why these are observed in practice   </li></ul> <ul><li>be able to exercise a capacity for independent and self-managed learning </li></ul> <ul><li>be able to exercise a capacity for independent and self-managed learning  </li></ul> <ul><li>be able to exercise a capacity for independent and self-managed learning </li></ul> Overall there will be 20 hours (10x2) of formal lectures + 6 hours (6x1) of workshop style tutorials.• Lectures: 2 hours per week over 10 weeks  The lectures will be on campus and a podcast of the lecture will be made available on Blackboard.  • Tutorials/Workshops: 1 hours per week over 6 weeks  The workshops run in weeks 3, 4, 5, 8, 9, and 10. At the end of each workshop week the solutions to the relevant exercise pack will be made available via Blackboard.Practice tests will also be made available on Canvas on a regular basis (via Mobius)   0 Other 100% Formative Assessment: Weekly practice tests (Mobius)Summative Assessment: Exam (100%) <ul><li>Feedback on formative assessment: Immediately via Mobius </li><li>Feedback on summative assessment: Generic feedback released on Canvas after marks are announced    </li></ul> BMAN23000 Foundations of Finance A Pre-Requisite Compulsory BMAN23000B Foundations of Finance B Pre-Requisite Compulsory BMAN20242 Introduction to Corporate Finance and Financial Instruments Pre-Requisite Compulsory BMAN23000C Foundations of Finance C Pre-Requisite Compulsory BMAN23000 (A), (B) or (C) or BMAN20242 is a Pre-Requisite of BMAN 30091.Core/Compulsory/Optional/ Free Choice: OptionPre-requisite units: A 40% pass mark for BMAN23000 or BMAN20242 (although a pass mark of 50% or higher is preferable). STUDENTS INTERESTED IN ENROLLING IN BMAN 30091 SHOULD HAVE STRONG QUANTITATIVE SKILLS AND SHOULD NOT BE INTIMIDATED BY COMPLICATED EQUATIONS.  Programmes to which this course unit contributes (including cross faculty/school): Open to all programmes provided pre-reqs are met including IPO and exchange. Option:  Accounting, Mgt, IM, IBFE, Act Sci & Maths, BA Econ. N The recommended text for the course is Hull J.C. (2018), Options, Futures and Other Derivatives: Global edition, 11/E, ISBN-10: 1292410655, ISBN-13: 978-1292410654, Pearson Higher Education.You must make sure you have access to a copy of the core text.  It is a very useful text for students intending to take BMAN 30242 in the second semester.  The website linked to the Hull text is: http://www-2.rotman.utoronto.ca /~hull/. An online version is available at https://read.kortext.com/reader/pdf/953506/ where you can access using your university email address, and login via institutional account.  Assessment written exam 2 Lectures 20 Practical classes & workshops 6 0 72 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.