THE UNIVERSITY of EDINBURGH

DEGREE REGULATIONS & PROGRAMMES OF STUDY 2017/2018

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DRPS : Course Catalogue : School of Law : Law

Postgraduate Course: Financial Models and Derivatives in a Legal Context (LAWS11228)

Course Outline
SchoolSchool of Law CollegeCollege of Humanities and Social Science
Credit level (Normal year taken)SCQF Level 11 (Postgraduate) AvailabilityAvailable to all students
SCQF Credits40 ECTS Credits20
SummaryThe goal of this course is to introduce law students to basic concepts in finance. It focuses on an analysis of &ęderivative&™ instruments, how to use them in different economic situations, and the benefits/consequences of helping clients set up contracts employing them when investing or conducting business, both locally and globally. The instruments are analyzed from two separate points of view: speculative and hedging. Tools and basic models that help in understanding the appropriate usage of different derivatives in different situations will also be introduced and examined. Through the course analysis, students will develop a thorough understanding of the models that influence and eventually determine the relationships among different derivative instruments. Cases are used to analyse actual situations and explore different possible solutions using derivatives, determining the best choice for the particular risk exposure in the case. The course will be taught on the assumption that the students have no prior knowledge of these financial instruments. The first part of the course introduces the student to basic understanding of financial models. This knowledge forms the basis of analysis for the derivatives concept and it is an integral part of the course. Thereafter, the legal context is explored in detail.
Course description It is proposed that this optional LLM course will be tied to the Commercial Law LLM Programme. It will be delivered by Ms Dorit Samuel, a visiting Professor at Albany Law School in the USA who will be based here in Edinburgh from August 2010. Ms Samuel has run this course at various US law schools over the past eight years and it is has been very popular with law students. Law schools have been slow to understand the need both to teach law students basic principles of finance in order to prepare them for the work they might be faced with and to appreciate the peculiar benefits in having the material taught by a person trained in finance who also understands the legal context. On the other hand, law firms have been very impressed with the prospect of hiring law students that understand the underpinnings of the world of derivatives and financial modelling. This awareness, of course, has been heightened by the major financial havoc wrought by these sophisticated financial instruments; at the same time there has been an increasing understanding of the need to have both the lawyers who create financial transactions and those who supervise and police the system have a real, working understanding of what exactly creates the problem.

Introduction-The concept of time value of money, Theory of Agency, HBR 9-173-003 Present Value vs IRR

Net Present Value project evaluation versus Internal Rate of Return, Comparative evaluation and proforma analysis of projects

CAPM- Capital Asset Pricing Model - &ęrisk and return&™ HBR 9-276-183 The Capital Asset Pricing Model

The Arbitrage Pricing Theory Model$Żbasic understanding of arbitrage and how it drives pricing and hedging decisions

Introduction to options - Payoff diagrams of options and their use in hedging/speculation HBR 9-295-141 Introduction to Derivative Instruments

Black-Scholes Option pricing model: how to price an option. Evaluating variations of the model (i.e. foreign exchange pricing)

Put Call Parity Theorem and its application to Options

Introduction to Futures and Forwards contracts

Exploring the use of Futures and Forwards

Introduction to Swaps contracts-HBR Currency Swaps 9-286-073

Exploring the use of Swaps. Review of cases.

Cases: Analysis, Presentation and Discussion
Entry Requirements (not applicable to Visiting Students)
Pre-requisites Co-requisites
Prohibited Combinations Other requirements None
Additional Costs 0
Information for Visiting Students
Pre-requisitesNone
Course Delivery Information
Not being delivered
Learning Outcomes
From the course, the students should develop proficiency in financial information systems usage, become competent to engage in financial analysis using derivatives, understand the contractual binding system supporting the derivatives, and be able to deal effectively and efficiently with:

Asset pricing (risk-return) models evaluation;

Risk evaluation and determination of appropriate derivatives to hedge risk;

Foreign currency evaluation and its relationship to derivatives;

Option pricing using the BSOPM;

Researching economic data relating to derivatives by means of the Internet;

Analyzing and professionally presenting optimal choice hedging in specific cases.
Reading List
None
Additional Information
Graduate Attributes and Skills Not entered
Study Abroad None
KeywordsFinancial Law - Financial Derivatives
Contacts
Course organiserDr Gillian Black
Tel: (0131 6)50 9541
Email: gillian.black@ed.ac.uk
Course secretaryMiss Amanda Mackenzie
Tel: (0131 6)51 3211
Email: amanda.mackenzie@ed.ac.uk
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