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Advanced Derivative Securities (FNCE90005)

Graduate courseworkPoints: 12.5On Campus (Parkville)

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Year of offer2017
Subject levelGraduate coursework
Subject codeFNCE90005
Semester 2
FeesSubject EFTSL, Level, Discipline & Census Date

Arbitrage bounds, stock price dynamics, geometric Brownian motion and Itos Lemma, Cox-Ross-Rubinstein binomial model, Black-Scholes model, risk neutral valuation, forwards and futures, currency, stock index, futures and exotic options, Interest rate derivative securities.

Intended learning outcomes

On successful completion of this subject students should be able to:Explain the role of arbitrage as a basis for determining the prices of financial securities;

  • Compare the various dynamics of stock price and interest rate models;
  • Explain the derivation of key option pricing models including the Cox-Ross-Rubinstein Binomial model and the Black-Scholes model;
  • Analyse the use of arbitrage pricing techniques to value other classes of derivative securities including forwards, futures, swaps and interest rate derivatives;
  • Analyse the theoretical limitations of key pricing models and on practical difficulties which arise in their implementation.
  • Use statistical software to compute prices of financial instruments according to key pricing models such as the Black-Scholes model.
  • Interpret and analyse market data using statistical software to generate inputs for pricing models and to value derivative portfolios.

Generic skills

On successful completion of this subject, students should have improved the following generic skills:

  • Oral communication
  • Written communication
  • Collaborative learning
  • Problem solving
  • Team work
  • Statistical reasoning
  • Application of theory to practice
  • Interpretation and analysis
  • Critical thinking
  • Synthesis of data and other information
  • Evaluation of data and other information
  • Using computer software

Last updated: 16 August 2017