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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