IC301-Derivative Securities/Trading Simulation III

Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Terms in which taught: Autumn term module
Pre-requisites: IC102 Introductory Finance/Trading Simulation I
Non-modular pre-requisites:
Modules excluded:
Module version for: 2016/7

Module Convenor: Dr Mike Smith

Email: m.j.smith@icmacentre.ac.uk

Summary module description:
This module is delivered at University of Reading and University of Reading Malaysia.

This module is designed to combine theoretical and practical approaches to derivatives pricing and trading. The objectives of the module are the following: first, to give students an overview of derivative securities and markets; second, to provide a thorough understanding of derivatives pricing and trading; third, to guide them on the use of derivatives data; and fourth, to show how to apply theoretical models and strategies presented in class through a number of case simulations. The trading cases involve both discrete and continuous time models and require students both to trade and build hedging portfolios using put and call options.

Assessable learning outcomes:
By the end of the module, students will be able to: ¿Describe and characterize derivatives and markets ¿Evaluate and apply pricing and trading methods ¿Perform analysis of financial derivatives data ¿Construct simple spreadsheets for derivatives pricing and trading

Additional outcomes:

Outline content:
Topic 1: Introduction. Forward and futures markets Topic 2: Forward and futures prices and hedging strategies Topic 3: Stock options, options markets and trading strategies Topic 4: Binomial trees and Wiener processes Topic 5: The Black-Scholes model Topic 6: Options on stock indices, currencies and futures Topic 7: The Greeks and volatility smiles Topic 8: Numerical procedures Topic 9: Exotic options and alternative models Trading Simulation - Five basic trading cases (OP1, OP2, OP3, ST1, and ST2)

Brief description of teaching and learning methods:
There is a combination of lectures on the theory of derivatives markets, trading strategies and pricing methods and dealing room seminars to conduct experimental learning and hands-on pricing and hedging exercises. Some lecturing for INVEST II in the dealing room is combined with extensive practical pricing and hedging exercises using binomial and continuous time option pricing models. During the seminars, students are guided through the solutions to exercises and the use of derivatives data. Handouts are provided. Often, material from current journals, magazines and web pages discussing issues related to the lecture’s topics is distributed. Students are made aware of information available on the internet about derivative contracts and exchanges.

Contact hours:
  Autumn Spring Summer
Lectures 20
Seminars 10
Practicals classes and workshops 8
Guided independent study 162
Total hours by term 200.00
Total hours for module 200.00

Summative Assessment Methods:
Method Percentage
Written exam 70
Practical skills assessment 10
Class test administered by School 20

Other information on summative assessment:
1.5 hour unseen written paper (answer all the questions)
1.5 hour class test (20 multiple choice questions)
10% practical skills assessment is based on trading.

Formative assessment methods:

Penalties for late submission:
The Module Convenor will apply the following penalties for work submitted late, in accordance with the University policy.

  • where the piece of work is submitted up to one calendar week after the original deadline (or any formally agreed extension to the deadline): 10% of the total marks available for the piece of work will be deducted from the mark for each working day (or part thereof) following the deadline up to a total of five working days;
  • where the piece of work is submitted more than five working days after the original deadline (or any formally agreed extension to the deadline): a mark of zero will be recorded.

  • The University policy statement on penalties for late submission can be found at: http://www.reading.ac.uk/web/FILES/qualitysupport/penaltiesforlatesubmission.pdf
    You are strongly advised to ensure that coursework is submitted by the relevant deadline. You should note that it is advisable to submit work in an unfinished state rather than to fail to submit any work.

    Length of examination:
    1.5 hour unseen written paper

    Requirements for a pass:
    A minimum mark of 40%.

    Reassessment arrangements:
    Re-examination for Finals takes place in the Summer term of the following year.

    Additional Costs (specified where applicable):
    1) Required text books: Sheldon Natenburg- Option Volatility and Pricing: Advanced Trading Strategies and Techniques, 2nd Edition, Dec 2014ISBN-10: 0071818774
    2) Specialist equipment or materials:
    3) Specialist clothing, footwear or headgear:
    4) Printing and binding:
    5) Computers and devices with a particular specification:
    6) Travel, accommodation and subsistence:

    Last updated: 21 December 2016

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