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ACFI3130: Derivative Securities
OVERVIEW
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Course Description |
This course provides an insight into measuring and managing risk exposures of firms operating in the financial services industry. Introducing analytical tools of measuring interest rate risk, credit risk, and liquidity risk.
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Contact Hours |
Integrated Learning Session
Face to Face On Campus Two (2) hour(s) per Week for Full Term
Students are expected to complete 4 hours of guided learning via online preparation, lectures, interactive workshops, tutorials, discussion groups or self directed learning and an additional 6 hours of independent study per week.
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Unit Weighting |
10 |
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Workload |
Students are required to spend on average 120-140 hours of effort (contact and non-contact) including assessments per 10 unit course. |
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Please refer to the course CANVAS site for details of teaching staff for ALL course offerings. The primary contact for courses is the Course Coordinator, whose details are listed on the course CANVAS site. |
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Student Consultation |
A minimum of one (1) hour of consultation per week. Please see course CANVAS site for details of time and location. |
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Course Learning Outcomes |
On successful completion of this course, students will be able to:
1. Comprehend the nature and pricing of options contracts together with their uses in portfolio management and risk reduction
strategies;
2. Demonstrate what a futures contract is, how futures markets are organised and the determinants of futures prices;
3. Interrelate the system of deposits, margins and marking-to-market sed by futures exchanges;
4. Interpret and explain speculation and hedging strategies using futures contracts, inclusive of reasons for imperfection;
5. Define the features of the major financial contracts traded on the Sydney Futures Exchanges and analyse the speculation and hedging strategies using their futures contracts;
6. Explain the uses of forward-rate agreements;
7. Identify the major types and characteristics of options, distinguish between options and futures, and expound the factors that affect option prices;
8. Apply basic option pricing theorems, including put-call parity;
9. Examine the Black-Schols and binomial option pricing models and how they are used to calculate option prices;
10. Explain the characteristics and uses of foreign currency options;
11. Work individually or in teams to analyse and communicate investment information leading to independent investment decision making; and
12. Evaluate different financial paradigms and outcomes to inform and direct personal and professional learning
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ASSESSMENT DETAILS
This course has 3 assessments. Each assessment is described in more detail in the sections below:
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Assessment Name |
Week 7
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Involvement |
Weighting |
Learning Outcomes |
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1 |
Mid Semester Quiz
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Day of workshop - Week 8 by 11:59 pm |
Individual |
25% |
2, 3, 4, 5, 6
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2 |
Assignment
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Sunday, Week 10 by 11:59 pm |
Individual |
25% |
2, 3, 4, 5, 11
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3 |
Final Examination |
Examination Period |
Individual |
50% |
1, 2, 3, 4, 5, 6, 7, 8, 9, 10
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Assessment 1 – Mid Semester Quiz
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Assessment Type |
Quiz
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Purpose |
The purpose of this quiz is to assess students’ capacity to apply critical thinking and analytical problem-solving skills to provide reasoned and appropriate responses to questions
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Description |
In this quiz you will be required to answer multiple-choice and short-answer questions. You will be required to apply critical thinking and analytical problem-solving skills to provide reasoned and appropriate responses to the questions. The quiz will cover the first five lecture topics (all of the material covered in Chapter 17 of the textbook) and will include questions that are practical and theoretical in nature.
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Weighting |
25% |
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Length |
90 minutes (including reading time)
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Due Date |
A date to be determined in week 7
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Submission Method |
In Class
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Assessment Criteria |
The following five (5) criteria will be applied:
− Demonstrated understanding of theory and relevant concepts.
− Demonstrated application of financial mathematics to solve problems.
− Accuracy of information/argument.
− Clarity of expression.
− Relevance of answer to the question
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Return Method |
In Class/Online
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Feedback Provided |
Online - Solutions will be provided on the CANVAS site and discussed in tutorials.
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Assessment 2 - Written Assignment
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Assessment Type |
Written Assignment
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Purpose |
The purpose of this assignment is to assess students' capacity to demonstrate via a trading application their knowledge of what a futures contract is, how futures markets are organised and the determinants of futures prices. It also assesses their understanding of the system of deposits, margins and marking-to-market used by futures exchanges and their ability to interpret and explain speculation and hedging strategies using futures contracts, inclusive of reasons for imperfection. It also assesses their understanding of the major financial contracts traded on the derivatives exchange.
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Description |
Students apply critical thinking and problem solving in assessing how to apply their futures trading strategies and effectively communicate those strategies through a written report
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Weighting |
25% |
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Length |
1500 words
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Due Date |
Sunday of week 10 by 11:59 pm
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Submission Method |
Online – via Turnitin |
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Assessment Criteria |
Five (5) criteria will be used:
− Demonstrated understanding of theory and relevant concepts.
− Demonstrated application of financial tools in relevant business decision making.
− Depth and relevance of analysis.
− Logic and reasoning of arguments.
− Structure and presentation of the report.
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Return Method |
Not returned
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Feedback Provided |
Online - Solutions to the assignment will be provided on CANVAS prior to the examination to allow timely feedback.
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Assessment 3 - Final Examination |
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Assessment Type |
Formal Examination |
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Purpose |
In this exam you will be required to answer multiple-choice and short-answer questions.
You will be required to apply critical thinking and analytical problem-solving skills to provide reasoned and appropriate responses to the questions.
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Description |
The exam will cover the ALL of the material covered in the course and will include questions that are practical and theoretical in nature.
This course has a RESTRICTED OPEN BOOK examination. A memory aid is permitted. The memory aid is a single double sided A4 sheet of handwritten or typed notes for use during the examination. Note: memory aids must be left on the examination table and cannot be removed from the examination venue.
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Weighting |
50% |
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Length |
120 minutes |
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Due Date |
Formal Exam Period |
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Submission Method |
Formal Examination |
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Assessment Criteria |
Five (5) criteria will be used: − Demonstrated understanding of theory and relevant concepts − Demonstrated application of portfolio theories and models to solve investment problems − Accuracy of information/argument − Clarity of expression − Relevance to the question |
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Return Method |
Not Returned |
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Feedback Provided |
No Feedback. Examination scripts will not be returned to students. Final examination scripts will be made available for review by students, upon request, in a controlled and monitored setting. Students are required to make requests, directly to the relevant course coordinator. Completed examination scripts are kept by the Newcastle Business School for a period of six (6) months only, from the relevant fully graded date. Requests made after the six (6) month period cannot be considered. |
SYLLABUS
Course Content
Course Materials
SCHEDULE
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Week |
Topic |
Class Preparation |
Assessment |
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1 |
Introduction to Futures Markets
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Read Peirson et al. Chapter 17, sections 17.1-17.4
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2 |
Futures Market Strategies
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Read Peirson et al. Chapter 17, sections 17.5-17.6, 17.8
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3 |
Futures Market Strategies (continued)
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Read Peirson et al. Chapter 17, sections 17.5-17.6, 17.8
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4 |
Futures Market Strategies (continued) |
Read Peirson et al. Chapter 17, sections 17.7 and 17.9
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5 |
Financial Futures Contracts
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Read Peirson et al. Chapter 17, sections 17.7 and 17.9 |
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6 |
Financial Futures Contracts (continued)
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Jegadeesh and Titman (2001) |
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7 |
Mid-Semester Quiz
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Damodaran (2012a) |
Assessment 1 due: Mid Semester quiz. Date and time to be advised on CANVAS. |
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8 |
Introduction to Options Market
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Read Peirson et al. Chapter 18, sections 18.1-18.2
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9 |
Introduction to Options Market (continued)
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Read Peirson et al. Chapter 18, sections 18.1-18.2
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10 |
Put-Call Parity
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Read Peirson et al. Chapter 18, section 18.2 |
Assessment 2 due: Sunday, Week 10 by 11:59 pm |
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11 |
Binomial Option Pricing
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Read Peirson et al. Chapter 18, section 18.3
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12 |
Foreign Currency Options |
Read Peirson et al. Chapter 18, section 18.5
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13 |
Revision |
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