BFF5340 · Applied derivatives

Overview

This unit builds on a basic derivatives course to provide a rigorous yet intuitive treatment of derivatives products with an applied focus. Topics include risk neutral valuation, binomial option pricing, the Black-Scholes-Merton model and the underlying mathematics, exotic options, Monte Carlo simulation, credit derivatives, Value-at-Risk, real options, model implementation. A simulated trading activity based on real time data will further enrich your understanding of the derivatives world obtained from your prior study.

Offerings

Assessment

The Handbook does not list a final examination among the assessment items. That is not a guarantee there is none.

Assessment details may change. Please refer to the assessment information in Moodle closer to the start of the teaching period.

Requisites

Learning outcomes

1. apply your understanding of option replication and risk neutral portfolio valuation as the two general methods of identifying arbitrage-free derivative prices
2. review and implement a binomial option pricing model
3. develop an understanding of the mathematical functions underlying the Black-Scholes-Merton model through the construction of option pricing tools
4. apply modelling procedures to price exotic options, including barrier options and binary options
5. analyse at-expiry option pay-off data to evaluate financial hedging and trading alternatives
6. analyse, value and utilise credit default swaps, currency options, interest rate options and employee stock options in common business environments
7. examine Value-at-Risk methods to quantify portfolio risk
8. develop and apply a thorough understanding of the practical working of derivative products and markets, including an understanding of the “greeks” through the use of simulated trading software
9. apply critical thinking to demonstrate comprehensive understanding of all topics covered within BFF5340 through a final summative assessment.

Workload

Minimum total expected workload to achieve the learning outcomes for this unit is 144 hours per semester typically comprising a mixture of scheduled learning activities and independent study. Independent study may include associated readings, assessment and preparation for scheduled activities. You are expected to complete all pre-class activities prior to your scheduled class, and post-class activities should be completed after your scheduled class. Learning activities may include a combination of teacher directed, peer directed and online engagement activities.

Student experience, not official rules. Nothing here changes what the Handbook says.