Derivative Securities

This subject has the following teaching availabilities in 2014:

Estimated total time commitment of 120 hours per semester

This subject is only available to students enrolled in the Graduate Diploma in Finance, Postgraduate Diploma in Finance, the Master of Finance and for students in the Master of Management who have successfully completed FNCE90018 Corporate Financial Policy and FNCE90056 Investment Management.

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For the purposes of considering requests for Reasonable Adjustments under the Disability Standards for Education (Cwth 2005), and Students Experiencing Academic Disadvantage Policy, academic requirements for this subject are articulated in the Subject Description, Subject Objectives, Generic Skills and Assessment Requirements for this entry.

The University is dedicated to provide support to those with special requirements. Further details on the disability support scheme can be found at the Disability Liaison Unit website: http://www.services.unimelb.edu.au/disability/

This subject covers derivative markets and derivative securities. It discusses pricing, risk management and regulatory aspects of derivative securities. Topics include: forwards and futures markets, options markets, arbitrage and trading securities, basic pricing concepts, the cost-of-carry model, the Black-Scholes model, hedging and risk management techniques.

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

• Explain factors affecting option prices, including volatility and dividends;
• Calculate arbitrage bounds;
• Devise trading strategies for options;
• Explain the impact of dividends on option pricing;
• Use the Black-Scholes model for option pricing;
• Calculate and use hedge parameters in option pricing
• Explain factors affecting the pricing of forward and futures contracts
• Devise appropriate hedging strategies using a mix of different derivative securities.

• 3000 word assignment or equivalent, due in Weeks 7-9 (30%)
• Three-hour end-of semester examination (70%)

You will be advised of prescribed texts by your lecturer.

This subject is not available as a breadth subject.

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
• Using computer software