ICM231-Financial Instruments

Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Level:7
Terms in which taught: Spring term module
Pre-requisites:
Non-modular pre-requisites:
Co-requisites:
Modules excluded:
Module version for: 2017/8

Module Convenor: Dr Nadia Kappou

Email: k.kappou@icmacentre.ac.uk

Summary module description:

Having established the theoretical basis for security valuation in Part I, this module extends students’ understanding to the valuation of financial instruments and their applications. The module has a significant practical component with seminars that are designed to support the lecture material.



 


Aims:

The module aims to:



- Introduce the main concepts of derivatives pricing 



- Expand students' knowledge of financial derivatives across the main asset classes: equity, FX, interest rate and credit markets.



- Set the right mindset on how to price financial products and use them in risk management.



 


Assessable learning outcomes:
By the end of the module, it is expected that students will:

• Be familiar with exotic equity options, their pay-offs and some simple analytic pricing approximations
• Understand how to value some of the most popular swap varieties, and how they may be used for managing risk.
• Understand the motivation for engineering structured products
• Value caps, floors and swaptions, which are widely used in interest rate markets
• Value convertible bonds and understand the interplay between market and credit risk factors
• Outline the basic credit derivatives, including total return and default swaps; and outline how to price and hedge basket derivatives including collateralized debt obligations



Additional outcomes:
Students will have a deep understanding of all the types of risks that are embedded in listed and OTC derivatives structures across all asset classes

Outline content:
- Equity and FX Futures, Forwards and Options
- Option prices, sensitivities and empirical evidence
- Exotic Options
- Interest Rate Futures, Forwards and Swaps
- Convertible Securities
- Caps, Floors and Swaptions
- Credit Derivatives
- Structured Credit Products (MBS, CDO, ABCP)

Brief description of teaching and learning methods:

Full time: Each topic is introduced in a lecture plus a practical workshop format. During seminars student will be expected to use specially designed excel spreadsheets.


Contact hours:
  Autumn Spring DL
Lectures   20 20
Tutorials/seminars   6 6
Practicals   14 14
Other contact (eg study visits)      
       
Total hours   32 32
       
Number of essays or assignments   2 multiple choice tests 3 multiple choice tests
Other (eg major seminar paper)      

Summative Assessment Methods:
Method Percentage
Written exam 70
Class test administered by School 30

Other information on summative assessment:
For Full-time students: 2 Multiple Choice Tests counting for a total of 30% of the final mark (15% each).

Formative assessment methods:

Penalties for late submission:

Penalties for late submission on this module are in accordance with the University policy. Please refer to page 5 of the Postgraduate Guide to Assessment for further information: http://www.reading.ac.uk/internal/exams/student/exa-guidePG.aspx
Penalties for late submission on this module are in accordance with the University policy. Please refer to page 5 of the Postgraduate Guide to Assessment for further information: http://www.reading.ac.uk/internal/exams/student/exa-guidePG.aspx

Length of examination:
2- hour written paper

Requirements for a pass:
A minimum mark of 50%??

Reassessment arrangements:

Re-assessment in September of the same year, by final exam only?.


Additional Costs (specified where applicable):
1) Required text books: Option, Futures and Other Derivatives, John C. Hull, 2011, Pearson ISBN: 978-0273759072, £67.00
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: 31 March 2017

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