Module title: Module code

Module provider: Level: Module Convenor: Pre-requisites: Modules excluded:

Derivative Securities / TRADING SIMULATION III IC301
ICMA Ce tre Number of credits: !0 "10 #CTS credits$ Autu( !01!/13

% &%o ours' Terms in which taught: Nic)olas C)e ( #C!*0 Co-requisites: Current from:

Ai(s: This module is designed to combine theoretical and practical approaches to derivatives pricing and trading The ob!ectives of the module are the following: first" to give students an overview of derivative securities and mar#ets$ second" to provide a thorough understanding of derivatives pricing and trading$ third" to guide them on the use of derivatives data$ and fourth" to show how to appl% theoretical models and strategies presented in class through a number of case simulations The trading cases involve both discrete and continuous time models and require students both to trade and build hedging portfolios using put and call options Assessa+le lear i , outco(es: &% the end of the module" students will be able to: − 'escribe and characteri(e derivatives and mar#ets − )valuate and appl% pricing and trading methods − Perform anal%sis of financial derivatives data − Construct simple spreadsheets for derivatives pricing and trading Additio al outco(es: Outli e co te t &su+-ect to c)a ,es': Topic *: +ntroduction ,orward and futures mar#ets Topic -: ,orward and futures prices and hedging strategies Topic .: /toc# options" options mar#ets and trading strategies Topic 0: &inomial trees Topic 1: &rownian motion and 2iener process Topic 3: The &lac#-/choles model Topic 4: 5ptions on stoc# indices" currencies and futures Topic 6: The 7ree#s and volatilit% smiles Topic 8: 9eal options +N:)/T ++: ,our trading sessions Teac)i , a d lear i , (et)ods: There is a combination of lectures on the theor% of derivatives mar#ets" trading strategies and pricing methods and dealing room seminars to conduct experimental learning and handson pricing and hedging exercises /ome lecturing for +N:)/T ++ in the dealing room is combined with extensive practical pricing and hedging exercises using binomial and continuous time option pricing models 'uring the seminars" students are guided through the solutions to exercises and the use of derivatives data ;andouts are provided 5ften" material from current !ournals" maga(ines and web pages discussing issues related to the lecture<s

topics is distributed /tudents are made aware of information available on the internet about derivative contracts and exchanges .

hr 0 x .hr /pring /ummer .A B weight of 4>C Part +++ final examinations begin in wee# .hr 1 x . of the /ummer term Requirements for a pass = minimum mar# of 0>C Reassessment arrangements 9e-examination for .inals ta#es place in the /ummer term of the following %ear =utumn *> x .Co tact )ours: Lectures Tutorials?seminars Practicals 5ther contact @e g stud% visitA Total hours Number of essa%s or assignments 5ther Assess(e t: Coursework = multiple-choice test" four trading sessions and five @non-gradedA assignments Relative percentage of coursework 5ne multiple-choice test B weight of ->C .our trading sessions B weight of *>C .inal )xam B weight of 4>C Examination 5ne * 1 hour unseen written paper @answer an% .questions out of .6 * multiple-choice test 1 assignments 0 trading sessions NA .

Lecture: &lac# /choles Model Trading .0 9oom /mall theatre 7>8 /mall theatre 7>8 Trading room 7>6 /mall theatre 7>8 Trading room 7>6 /mall theatre 7>8 Trading room 7>6 /mall theatre 7>8 Trading room 7>6 /mall theatre 7>8 Trading room 7>6 /mall theatre 7>8 Trading room 7>6 /mall theatre 7>8 Trading room 7>6 /mall theatre 7>8 Trading room 7>6 /mall theatre 7>8 Trading room 7>6 4 6 8 *> DOn the due dates or seminar dates.?**?->**8?**?->*->?**?->*-3?**?->*-4?**?->*>.>?*>?->*1?**?->*3?**?->**-?**?->**.2 1 .2 * 'ue Chap 1 Chap .2 0 Chap *3" .s text "ook to do the C. he assignments prepare the students for the test and the final exam. %eminar +' .Ti(e Ta+le @/ub!ect to ChangesA 2ee# * . .8 interpolation to prepare students for *lack-%choles Model.utures Pricing Lecture: . %eminar 3' 4se the distri"ution ta"les on 0age 5+6 and 5+7 of Hull. .2 .2 * ." .?*>?->*-8?*>?->*. $ will cover the following mathematical material in seminars. . 'ue Chap *0" . he! will not "e graded. 0 1 3 'ate >6?*>?->**1?*>?->**3?*>?->*--?*>?->*-.utures Mechanism Lecture: 5ption mar#ets and propert% Trading . %eminar &' (ive two simple examples )exercises on calculating the expected value to prepare students for *inomial ree. #n addition.2 .o one-varia"le and two-varia"le a!lor expansion to prepare the students for deriving #to. teaching assistant will go over the answers of homework (HW) assignments in the first four seminars and explain the MC test in the last seminar.2 .2 Chaps 8 and *>" Chap *-" . @5ptions tradingA Lecture: 5ptions on stoc# indexes and currencies" 9eview /eminar 0 +n-class MC Test /eminar 1 Lecture: 7ree# letters and real options Trading 0 @Trading simulation testA Chaps * and -" .'ue Chap *.@.2s 0 and 1 'ue MC Test =nswers Chaps *6 and .utures tradingA Lecture: &inomial trees /eminar Lecture: 2iener process and +to<s lemma /eminar .s /emma on 0age +12 and do some exercise on the first order differentiations.?*-?->*>0?*-?->**>?*-?->***?*-?->*Topics Lecture: +ntro to derivatives /eminar * @both groups in 9oom 7>8A Trading * @+ntro to tradingA Lecture: .