ICM231-Financial Instruments

Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Terms in which taught: Spring term module
Non-modular pre-requisites:
Modules excluded:
Current from: 2021/2

Module Convenor: Dr Nadia Kappou
Email: k.kappou@icmacentre.ac.uk

Type of module:

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.


The module aims to introduce the main concepts of derivatives pricing and expand students' knowledge of financial derivatives across the main asset classes: equity, FX, interest rate and credit markets. It sets the right mind-set 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:  

  • Describe Equity and FX futures, vanilla and exotic equity options, their pay-offs and some simple analytic pricing approximations  

  • Explain how to value some of the most popular swap varieties, and how they may be used for managing risk

  • Discuss the motivation for engineering structured products  

  • Value caps, floors and sw aptions, 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:

Core lectures supported by classroom based tutor led discussion. Numerical exercises will require advanced use of Excel spreadsheets, as well as Bloomberg and Reuters applications.


Contact hours:
  Autumn Spring Summer
Lectures 20
Seminars 6
Guided independent study:      
    Wider reading (independent) 20
    Wider reading (directed) 47
    Exam revision/preparation 50
    Advance preparation for classes 5
    Preparation for tutorials 12
    Revision and preparation 40
Total hours by term 0 0
Total hours for module 200

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

Summative assessment- Examinations:

One 2-hour written examination (70% of final mark)

Summative assessment- Coursework and in-class tests:

Two 1-hour Multiple-choice Tests (15% of final mark each). Test 1 is scheduled within the last two weeks of the spring term and Test 2 within the first week of the summer term.

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

Assessment requirements for a pass:

A minimum mark of 50%

Reassessment arrangements:

Re-assessment in August by written examination

Additional Costs (specified where applicable):

Text books: £70.00

Computers and devices with a particular specification: £15

Last updated: 8 April 2021


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