Derivative Securities (FNCE30007)

Undergraduate level 3Points: 12.5On Campus (Parkville)

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Overview

Availability
Semester 1
Semester 2
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This subject focuses on the application and valuation of derivative securities, such as forwards, futures, swaps and options. The emphasis will be on arbitrage relations, valuation, and hedging with derivatives. The topics covered include; Forwards and futures: the mechanics of trading, price determination, hedging strategies; Swaps: definition and valuation; Options: payoffs, arbitrage bounds, trading strategies, the binomial model, the Black-Scholes model and its relationship to the binomial, hedging, American options and dividends, options on futures, limitations of the binomial and Black-Scholes Models.

Intended learning outcomes

On successful completion of this subject students should be able to:



  • Explain the role of derivatives exchanges and the characteristics of derivative securities;
  • Explain the role of arbitrage as a basis for determining the prices of derivative securities;
  • Explain the mechanics of trading futures contracts, forward contracts and options;
  • Design and manipulate payoff diagrams for various derivative securities;
  • Calculate option prices using the Black-Scholes and binomial models;
  • Explain how derivative securities can be used in hedging;
  • Reflect on the theoretical limitations of key derivatives pricing models and on practical difficulties that arise in their implementation.

Generic skills

  • High level of development: problem solving; statistical reasoning; application of theory to practice; synthesis of data and other information; evaluation of data and other information.

  • Moderate level of development: written communication; interpretation and analysis; critical thinking; use of computer software.

  • Some level of development: oral communication; collaborative learning; team work; accessing data and other information from a range of sources.

Last updated: 20 March 2025

Eligibility and requirements

Prerequisites

Code Name Teaching period Credit Points
FNCE20001 Business Finance
Semester 1 (On Campus - Parkville)
Summer Term (On Campus - Parkville)
Semester 2 (On Campus - Parkville)
 12.5
Business Finance OR
Code Name Teaching period Credit Points
FNCE20005 Corporate Financial Decision Making
Not available in 2017
 12.5
Corporate and Financial Decision Making

and one of

Code Name Teaching period Credit Points
ECOM20001 Introductory Econometrics
Semester 2 (On Campus - Parkville)
Semester 1 (On Campus - Parkville)
 12.5
Introductory Econometrics
Code Name Teaching period Credit Points
ECON20003 Quantitative Methods 2
Semester 2 (On Campus - Parkville)
Summer Term (On Campus - Parkville)
Semester 1 (On Campus - Parkville)
 12.5
Quantitative Methods 2
Code Name Teaching period Credit Points
MAST20005 Statistics
Semester 2 (On Campus - Parkville)
 12.5
Statistics
Code Name Teaching period Credit Points
MAST20004 Probability
Semester 1 (On Campus - Parkville)
 12.5
Probability
Code Name Teaching period Credit Points
MAST20006 Probability for Statistics
Semester 1 (On Campus - Parkville)
 12.5
Probability for Statistics
Code Name Teaching period Credit Points
MAST20018 Discrete Maths and Operations Research
Semester 2 (On Campus - Parkville)
 12.5
Discrete Maths and Operations Research
Code Name Teaching period Credit Points
MAST20029 Engineering Mathematics
Semester 1 (On Campus - Parkville)
Semester 2 (On Campus - Parkville)
Summer Term (On Campus - Parkville)
 12.5
Engineering Mathematics
620-270 Applied Statistics
620-261 Introduction to Operations Research (2008 or earlier)

Corequisites

None

Non-allowed subjects

None

Recommended background knowledge

Please refer to Prerequisites and Corequisites.

Inherent requirements (core participation requirements)

The University of Melbourne is committed to providing students with reasonable adjustments to assessment and participation under the Disability Standards for Education (2005), and the Assessment and Results Policy (MPF1326). Students are expected to meet the core participation requirements for their course. These can be viewed under Entry and Participation Requirements for the course outlines in the Handbook.

Further details on how to seek academic adjustments can be found on the Student Equity and Disability Support website: http://services.unimelb.edu.au/student-equity/home

Last updated: 20 March 2025

Assessment

Additional details

  • 3-hour end-of-semester examination (75%)
  • A mid-semester examination between weeks 6 – 8 (25%)
  • To pass this subject students must pass the end of semester examination.

Last updated: 20 March 2025

Dates & times

  • Semester 1
    Principal coordinatorFederico Nardari
    Mode of deliveryOn Campus (Parkville)
    Contact hoursTwo 1-hour lectures and a 1-hour tutorial per week
    Total time commitment170 hours
    Teaching period27 February 2017 to 28 May 2017
    Last self-enrol date10 March 2017
    Census date31 March 2017
    Last date to withdraw without fail 5 May 2017
    Assessment period ends23 June 2017

    Semester 1 contact information

    Semester 1: federico.nardari@unimelb.edu.au

    Semester 2: neal.galpin@unimelb.edu.au

  • Semester 2
    Principal coordinatorJohn Handley
    Mode of deliveryOn Campus (Parkville)
    Contact hoursTwo 1-hour lectures and a 1-hour tutorial per week
    Total time commitment170 hours
    Teaching period24 July 2017 to 22 October 2017
    Last self-enrol date 4 August 2017
    Census date31 August 2017
    Last date to withdraw without fail22 September 2017
    Assessment period ends17 November 2017

Time commitment details

170 hours

Last updated: 20 March 2025

Further information

  • Texts

    Prescribed texts

    You will be advised of prescribed texts by your lecturer.

  • Related Handbook entries

    This subject contributes to the following:

    TypeName
    Breadth TrackEconomics and Finance
  • Breadth options

    This subject is available as breadth in the following courses:

  • Available through the Community Access Program

    About the Community Access Program (CAP)

    This subject is available through the Community Access Program (also called Single Subject Studies) which allows you to enrol in single subjects offered by the University of Melbourne, without the commitment required to complete a whole degree.

    Please note Single Subject Studies via Community Access Program is not available to student visa holders or applicants

    Entry requirements including prerequisites may apply. Please refer to the CAP applications page for further information.

Last updated: 20 March 2025