Futures and Options (BS0194)

? Credit Points : 20 ? SCQF Level : 10 ? Acronym : MSE-3-FO

The course covers the market structure, use and pricing of futures and options, two key elements of financial markets. Both allow users to modify and transfer risks, take speculative positions, and develop investment strategies and the markets in which they are traded are significant elements of most advanced economies. Key questions as to their applications and pricing form a specialist area in finance. In particular, options involve the development of complex models for, pricing and monitoring their behaviour. A sub-element of the course will examine the use and pricing of interest rate and cross-currency swaps.

Entry Requirements

? Pre-requisites : A pass in Principles of Finance (BS0003)

Subject Areas

Home subject area

Business Studies, (Management School and Economics, Schedule H)

Delivery Information

? Normal year taken : 3rd year

? Delivery Period : Semester 2 (Blocks 3-4)

? Contact Teaching Time : 2 hour(s) per week for 10 weeks

First Class Information

Date	Start	End	Room	Area	Additional Information
07/01/2008	16:10	18:00	Room G.02, William Robertson Building	Central

All of the following classes

Type	Day	Start	End	Area
Lecture	Monday	16:10	18:00	Central

Summary of Intended Learning Outcomes

Objectives and Learning Outcomes, Knowledge and Understanding.
After completing this course, students should understand:
- the nature of derivatives;
- how arbitrage pricing works and how this sets prices in a competitive market;
- the idea of replicating portfolios or transactions;
- how futures contracts work;
- how futures are priced in a competitive market;
- the pricing of interest rate and cross-currency swaps;
- how market users make use of swaps to manage risks;
- the nature and types of options;
- option boundary conditions;
- the ways the binomial and Black-Scholes option pricing models are used to determine the fair value of a simple option;
- how to make extensions to the basic models to take account of dividends and early exercise;
- an understanding of how exotic options work;
- how to use their knowledge of arbitrage pricing methods for options and futures to undertake financial engineering;

Assessment Information

This will be a mixture of examination and assignment. The assignment is worth 30 per cent of the course mark. The examination represents 70 per cent of course marks.