ICM292-Derivatives Modelling

Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Level:7
Terms in which taught: Spring term module
Pre-requisites: ICM127 Stochastic Calculus and Probability
Non-modular pre-requisites:
Co-requisites:
Modules excluded:
Module version for: 2016/7

Email: e.lazar@icmacentre.ac.uk

Summary module description:

Aims:
To convey the basic concepts and analytical methodology for the valuation of derivatives in the standard Black-Scholes framework.

Assessable learning outcomes:
By the end of the module, it is expected that the student will be able to:
• derive the price, in discrete and continuous frameworks, using different methods, for a variety of equity based simple and exotic derivatives
• digest the literature on equity based derivatives at an intermediary level, compare different methodologies and evaluate results

Additional outcomes:
The module creates awareness of the mathematical foundation for working in the area of financial derivatives’ pricing. This will also create motivation and background for further study in other areas as well (eg. the pricing of interest rate and credit derivatives). The students will get an introduction into the models and pricing of interest rate and credit derivatives.

Outline content:
1.Introduction, use of derivatives, the greeks
2.Discrete time valuation
3.Continuous time valuation
4.Black-Scholes model, properties and extensions
5.Martingale approach
6.Complete and incomplete markets
7.Claims on currencies and multiple assets; foreign equity markets
8.Selected equity, interest rate and credit derivatives

Brief description of teaching and learning methods:
Lectures supported by discussion of homework assignment in interactive seminars.
Teaching is based on tailor made lecture notes.
In addition frequent reference is made to the recommended textbooks.
Compulsory homework assignments are set weekly.

Other information on summative assessment:

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

Length of examination:
2 hours closed book written examination

Requirements for a pass:
50% weighted average mark

Reassessment arrangements:
By written examination only, as part of the overall examination arrangements for the MSc programme

Additional Costs (specified where applicable):
1) Required text books: Thomas Bjork: Arbitrage Theory in Continuous Time OUP Oxford, 2009, ISBN-10: 019957474X, £50.00.
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: 21 December 2016