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Derivative Securities (FNCE30007)

Undergraduate level 3Points: 12.5On Campus (Parkville)

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Overview

Year of offer2019
Subject levelUndergraduate Level 3
Subject codeFNCE30007
Campus
Parkville
Availability
Semester 1
Semester 2
FeesSubject EFTSL, Level, Discipline & Census Date

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.

Eligibility and requirements

Prerequisites

One of:

Code Name Teaching period Credit Points
FNCE20001 Business Finance
Summer Term
Semester 1
12.5
FNCE20005 Corporate Financial Decision Making
Summer Term
Semester 1
Semester 2
12.5

AND

One of:

620-270 Applied Statistics
620-261 Introduction to Operations Research (2008 or earlier)

Code Name Teaching period Credit Points
MAST20018 Discrete Maths and Operations Research
Semester 2
12.5
ECOM20001 Econometrics 1
Semester 1
Semester 2
12.5
MAST20029 Engineering Mathematics
Summer Term
Semester 1
Semester 2
12.5
MAST20004 Probability
Semester 1
Semester 2
12.5
MAST20006 Probability for Statistics
Semester 1
12.5
ECON20003 Quantitative Methods 2
Summer Term
Semester 1
Semester 2
12.5
MAST20005 Statistics
Summer Term
Semester 2
12.5

Corequisites

None

Non-allowed subjects

None

Recommended background knowledge

Please refer to Prerequisites and Corequisites.

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

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.

Dates & times

  • Semester 1
    Principal coordinatorJonathan Dark
    Mode of deliveryOn Campus — Parkville
    Contact hoursTwo 1-hour lectures and a 1-hour tutorial per week
    Total time commitment170 hours
    Teaching period 4 March 2019 to 2 June 2019
    Last self-enrol date15 March 2019
    Census date31 March 2019
    Last date to withdraw without fail10 May 2019
    Assessment period ends28 June 2019
  • Semester 2
    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 period29 July 2019 to 27 October 2019
    Last self-enrol date 9 August 2019
    Census date31 August 2019
    Last date to withdraw without fail27 September 2019
    Assessment period ends22 November 2019

Time commitment details

170 hours

Further information

  • Texts

    Prescribed texts

    You will be advised of prescribed texts by your lecturer.

  • Breadth options
  • 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.

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

  • Available to Study Abroad and/or Study Exchange Students

    This subject is available to students studying at the University from eligible overseas institutions on exchange and study abroad. Students are required to satisfy any listed requirements, such as pre- and co-requisites, for enrolment in the subject.

Last updated: 10 August 2019