ICM231-Financial Instruments

Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Level:7
Terms in which taught: Spring term module
Pre-requisites:
Non-modular pre-requisites:
Co-requisites:
Modules excluded:
Current from: 2020/1

Module Convenor: Dr Nadia Kappou

Email: k.kappou@icmacentre.ac.uk

Type of module:

Summary module description:

Having established the theoretical basis for security valuation in Part I, this module extends students’ understanding to the valuation of financial instruments and their applications. The module has a significant practical component with seminars that are designed to support the lecture material.

Aims:

The module aims to introduce the main concepts of derivatives pricing and expand students' knowledge of financial derivatives across the main asset classes: equity, FX, interest rate and credit markets. It sets the right mind-set on how to price financial products and use them in risk management.Ìý

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Assessable learning outcomes:

By the end of the module, it is expected that students will: Ìý

• Be familiar with Equity and FX futures, vanilla and exotic equity options, their pay-offs and some simple analytic pricing approximations Ìý


• Understand how to value some of the most popular swap varieties, and how they may be used for managing risk.Ìý


• Understand the motivation for engineering structured products Ìý


• Value caps, floors and swaptions, which are widely used in interest rate markets Ìý


• Value convertible bonds and understand the interplay between market and credit risk factors Ìý


• Outline the basic credit derivatives, including total return and default swaps; and outline how to price and hedge basket derivatives including collateralized debt obligations

Additional outcomes:

Students will have a deep understanding of all the types of risks that are embedded in listed and OTC derivatives structures across all asset classes.

Outline content:

• Equity and FX Futures, Forwards and Options Ìý


• Option prices, sensitivities and empirical evidence Ìý


• Exotic Options Ìý


• Interest Rate Futures, Forwards and Swaps Ìý


• Convertible Securities Ìý


• Caps, Floors and Swaptions Ìý


• Credit Derivatives Ìý


• Structured Credit Products (MBS, CDO, ABCP)

Brief description of teaching and learning methods:

Core lectures supported by classroom based tutor led discussion. Numerical exercises will require advanced use of Excel spreadsheets, as well as Bloomberg and Reuters applications.

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Contact hours:

Ìý	Autumn	Spring	Summer
Lectures		20
Seminars		6
Guided independent study:	Ìý	Ìý	Ìý
Ìý Ìý Wider reading (independent)		20
Ìý Ìý Wider reading (directed)		47
Ìý Ìý Exam revision/preparation		50
Ìý Ìý Advance preparation for classes		5
Ìý Ìý Preparation for tutorials		12
Ìý Ìý Revision and preparation		40
Ìý	Ìý	Ìý	Ìý
Total hours by term	0		0
Ìý	Ìý	Ìý	Ìý
Total hours for module	200

Summative Assessment Methods:

Method	Percentage
Written exam	70
Class test administered by School	30

Summative assessment- Examinations:

One 2-hour written examination (70% of final mark)

Summative assessment- Coursework and in-class tests:

Two 1-hour Multiple-choice Tests (15% of final mark each)

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Formative assessment methods:

Penalties for late submission:

Penalties for late submission on this module are in accordance with the University policy. Please refer to page 5 of the Postgraduate Guide to Assessment for further information: http://www.reading.ac.uk/internal/exams/student/exa-guidePG.aspx

Assessment requirements for a pass:

A minimum mark of 50%

Reassessment arrangements:

Re-assessment in August by written examination

Additional Costs (specified where applicable):

Text books: £70.00

Computers and devices with a particular specification: £15

Last updated: 15 April 2020