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Semester 1

Futures and Options (BUST10023)

Subject

Business Studies

College

CAHSS

Credits

20

Normal Year Taken

3

Delivery Session Year

2023/2024

Pre-requisites

Visiting students must have completed at least 4 Business courses at grade B or above. This MUST INCLUDE one course equivalent to BUST08003 Principles of Finance. This course cannot be taken alongside BUST08003 Principles of Finance or BUST08030 Introduction to Corporate Finance. We will only consider University/College level courses.

Course Summary

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.

Course Description

The Honours course Futures and Options is part of the suite of honours courses offered by the Business School in finance. It is normally taken in the third year of study of the MA degree at the University of Edinburgh, and is part of the finance progression stream. The course aims to provide students with the tools, knowledge and understanding of the derivative product set (that is, forward contracts, futures, swaps and options), how the instruments are priced, and the markets in which they are traded. The emphasis is on financial management and pricing. To integrate the discussion of these instruments, the course stresses the relationships that exist between the different instruments and, in particular, the various no-arbitrage and replication conditions that underlie the fair pricing of derivatives. Note that the course does not delve into the more advanced aspects of derivatives pricing such as stochastic processes, although some understanding of this is required. Outline Content Introduction to Futures and Options Forward and Futures Prices and Using Futures Commodity Futures Swaps 1: Pricing Swaps 2: Application Introduction to Options and Option Strategies Pricing Options Extending the Models to Indices, Currencies and Futures The Greeks of Option Pricing: Exotic Options Student Learning Experience Futures and Options is structured around the class programme supported by selected readings from the set text with some additional reference material. Outside of the formal class programme, students are expected to undertake additional self-study using the textbook by reading at least the recommended sections and other suggested references, including watching recommended videos. This will allow students to reinforce and expand on material introduced in the lectures. The assignment requires students to examine a particular aspect of the instruments being studied on the course with a view to developing a deeper understanding of the issues and processes involved. In delivering the assignment, students are required to identify, assess, evaluate, understand, and integrate material from a variety of sources and summarise it in a coherent and logical form.

Assessment Information

Written Exam 60%, Coursework 40%, Practical Exam 0%

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