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:
Current from: 2018/9

Module Convenor: Mr Lee Burrows

Email: lee.burrows@reading.ac.uk

Type of module:

Compulsory for MSc Financial Risk Management

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 and expand students' knowledge of financial derivatives across the main asset classes: equity, FX, interest rate and credit markets. It sets 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 Equity and FX futures, vanilla and 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:

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

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)

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):
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: 9 November 2018