BFC3340 - Derivatives 2 - 2017

This unit provides a more technical treatment of derivative analysis with focus on implementation issues. Topics include stochastic calculus concepts that underpin continuous time option pricing models, alternatives to the Black-Scholes-Merton model, numerical approaches to option pricing, valuation of interest rate derivatives, exotic options, credit derivatives, Value-at-Risk and estimation of volatilities.

The learning goals associated with this unit are to:

1. develop an understanding of Wiener processes and Ito's Lemma as the basic building blocks for continuous time option pricing models. Derive the Black-Scholes-Merton differential equations
2. apply models of option pricing beyond the Black-Scholes-Merton model
3. apply numerical procedures to price options especially exotic options
4. analyse interest rate derivatives and apply term structure models
5. implement pricing models using technical programing languages.
6. demonstrate how risk can be quantified using different approaches
7. analyse and value swaps, credit default swaps and other derivatives and demonstrate how they can be used for risk management and speculation
8. apply critical thinking, problem solving and presentation skills to individual and/or group activities dealing with derivative instruments and demonstrate in an individual summative assessment task the acquisition of a comprehensive understanding of the topics covered by BFC3340.

Within semester assessment: 40% + Examination: 60%

Minimum total expected workload to achieve the learning outcomes for this unit is 144 hours per semester typically comprising a mixture of scheduled learning activities and independent study. Independent study may include associated readings, assessment and preparation for scheduled activities. The unit requires on average three/four hours of scheduled activities per week. Scheduled activities may include a combination of teacher directed learning, peer directed learning and online engagement.

See also Unit timetable information

Dr Binh Do

Students must have passed one of the following units: BFC2751 or BFF2751

AFF3751, BFF3751, AFC3340