Advanced Derivative Securities

Subject FNCE90005 (2016)

Note: This is an archived Handbook entry from 2016.

Credit Points: 12.5
Level: 9 (Graduate/Postgraduate)
Dates & Locations:

This subject has the following teaching availabilities in 2016:

Semester 2, Parkville - Taught on campus.
Pre-teaching Period Start not applicable
Teaching Period 25-Jul-2016 to 23-Oct-2016
Assessment Period End 18-Nov-2016
Last date to Self-Enrol 05-Aug-2016
Census Date 31-Aug-2016
Last date to Withdraw without fail 23-Sep-2016

Timetable can be viewed here. For information about these dates, click here.
Time Commitment: Contact Hours: Seminars, lectures and tutorials totalling 3 hours per week
Total Time Commitment:

Estimated total time commitment of 120 hours per semester


Either FNCE30007 Derivative Securities and FNCE40002 Advanced Investments or admission into the Master of Commerce – Finance.

Study Period Commencement:
Credit Points:
Semester 1, Semester 2


Recommended Background Knowledge:


Non Allowed Subjects:


Core Participation Requirements:

For the purposes of considering request for Reasonable Adjustments under the Disability Standards for Education (Cwth 2005), and Student Support and Engagement Policy, academic requirements for this subject are articulated in the Subject Overview, Learning Outcomes, Assessment and Generic Skills sections of this entry.

It is University policy to take all reasonable steps to minimise the impact of disability upon academic study, and reasonable adjustments will be made to enhance a student's participation in the University's programs. Students who feel their disability may impact on meeting the requirements of this subject are encouraged to discuss this matter with a Faculty Student Adviser and Student Equity and Disability Support:


Subject Overview:

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.

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.

  • 3-hour end-of-semester examination (70%)
  • 3000 word assignment, or equivalent, due in Weeks 10-12 (30%)
Prescribed Texts:

You will be advised of prescribed texts by your lecturer.

Breadth Options:

This subject is not available as a breadth subject.

Fees Information: Subject EFTSL, Level, Discipline & Census Date
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
Related Course(s): Master of Commerce (Finance)

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