ECO-30048 - Module Specification
Keele Management School
Faculty of Humanities and Social Sciences

Programme/Approved Electives for 2019/20

Available as a Free Standing Elective

Co-requisites

None

Prerequisites

ECO-20044

Barred Combinations

None

Description for 2019/20

This module deals with risk management techniques that rely on the use of derivative contracts, i.e. options, forwards, and futures. The pricing of options and other derivatives depends on three key factors:
1. the volatility of the underlying assets;
2. the extensive use of arbitrage arguments to price assets as discussed in ECO-20041 (Asset Pricing); and
3. the present value and discounting procedures to value streams of cash flows as analysed in ECO-10017 (Economics of Financial Markets) and ECO-20044 (Portfolio Choice).
Bringing these three elements together and deepening the understanding of each, it will be shown how complex derivatives, such as options, futures, and forward contracts can be analysed. Derivative-like securities such as warrants and convertible bonds are often used by companies as part of their financing activities and may be discussed in Corporate Finance.

This course deals with risk management techniques that rely on the use of derivative contracts, i.e. options, forwards, and futures. The valuation of derivatives is based on arbitrage arguments as discussed in ECO-20011 (Asset Pricing) and the present value and discounting procedures to value streams of cash flows as analysed in ECO-10017 (Economics of Financial Markets) and ECO-20044 (Portfolio Choice). Bringing these three elements together and deepening the understanding of each, it will be shown how complex derivatives, like options and futures contracts can be analysed.

Intended Learning Outcomes

analyse and understand the role of derivatives markets; will be achieved by assessments: 1,2
enhance numeracy skills and problem solving skills; will be achieved by assessments: 1,2
critically evaluate alternative hedging strategies; will be achieved by assessments: 1,2
demonstrate the use of options and futures for speculative activity; will be achieved by assessments: 1,2
demonstrate the use of derivatives for arbitrage activity. will be achieved by assessments: 1,2

Study hours

24 hours lectures,
5 hours tutorials,
2 hour exam,
25 hours class preparation,
94 hours independent study.

School Rules

None

Description of Module Assessment