ULMS Electronic Module Catalogue
The information contained in this module specification was correct at the time of publication but may be subject to change, either during the session because of unforeseen circumstances, or following review of the module at the end of the session. Queries about the module should be directed to the member of staff with responsibility for the module.
Title Financial Engineering
Code ACFI918
Coordinator Mr JP Laws
Finance and Accounting
J.Laws@liverpool.ac.uk
Year CATS Level Semester CATS Value
Session 2019-20 Level 7 FHEQ Second Semester 15

Pre-requisites before taking this module (other modules and/or general educational/academic requirements):
 

Modules for which this module is a pre-requisite:
 

Programme(s) (including Year of Study) to which this module is available on a required basis:
 

Programme(s) (including Year of Study) to which this module is available on an optional basis:
 

Teaching Schedule
  Lectures Seminars Tutorials Lab Practicals Fieldwork Placement Other TOTAL
Study Hours 24

     10

   4

 38
Timetable (if known)              
Private Study 112
TOTAL HOURS 150

Assessment
EXAM Duration Timing
(Semester)		 % of
final
mark		 Resit/resubmission
opportunity		 Penalty for late
submission		 Notes
Examination Standard UoL penalties apply Marked anonymously  120 minutes    80       
CONTINUOUS Duration Timing
(Semester)		 % of
final
mark		 Resit/resubmission
opportunity		 Penalty for late
submission		 Notes
Mid-term test Re-assessment opportunity is via 100% examination end of year examination Standard UoL penalties apply Marked anonymously  60 minutes    20       

Aims

To provide an introduction to derivative products, namely futures and options in their many different varieties;

To examine these products from both a speculative and hedging perspective and also consider advanced strategies such as intra and inter commodity spreads for futures as well as sophisticated option strategies used, not exclusively, to trade volatility;

To examine the sensitivities of option strategies to underlying factors, namely an options "Greeks";

To consider the Black-Scholes-Merton and the Binomial approaches to option pricing;

To use Monte-Carlo simulation for the pricing of path dependent exotic options;

To develop skills in use of Excel, VBA, and Matlab.

Learning Outcomes

(LO1) Understand how futures and options are traded and priced.

(LO2) Be able to select the appropriate product to either hedge or speculate against future expected market conditions.

(LO3) Apply pricing strategies in market based situations.

(LO4) Develop trading skills using market data.

(S1) IT skills. Students will develop IT skills through data manipulation and analysis, charting in Excel, writing VBA code, 3d plots in Matlab.

(S2) Problem solving. Students will develop problem solving skills during practical class sessions.

(S3) Numeracy. Students will develop numeracy skills through research problem sets.

Teaching and Learning Strategies

Lectures x 24 hours
Labs x 10 hours
Guidance and demonstration on computing practicals x 4 hours
Self-Directed Learning x 112 hours

Syllabus
 

Introduction to Derivatives:

Forwards;

Futures;

Options;

Pricing Forwards and Futures;

Pricing Options - Binomial Trees;

Reading: Hull Chapters 1,3,10,11,12.

This Section will take about 4 weeks. The midterm will be based only on material up to this point. The lecture notes for this section will be available on VITAL at the end of week 4.

More on Pricing Derivatives:

Stock Price Behaviour;

The Black-Scholes Model;

Reading: Lecture Notes;

This section will take about 2 weeks.

Estimating Volatilities:

Volatility;

Unit Roots and ARCH/GARCH models;

Forecasting Volatility;

Reading: Hull Chapter 17, Tsay Chapter 3;

This section will take about 2/3 weeks.

Swaps Markets and Instruments

Credit Derivatives Markets and Instruments

Recommended Texts
Reading lists are managed at readinglists.liverpool.ac.uk. Click here to access the reading lists for this module.