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IB9X7 - Derivative Securities

  • Module code: IB9X7
  • Module name: Derivative Securities
  • Department: Warwick Business School
  • Credit: 15

Content and teaching | Assessment | Availability

Module content and teaching

Principal aims

General Aim: To develop an in-depth understanding of the characteristics of different classes of derivative securities such as forwards and futures, swaps and options; the markets in which these securities are traded; their potential use as instruments for managing risk; and methods for valuing these securities. Specific Aims: To describe the characteristics of different classes of derivative securities, their contract specifications and quoting conventions, and the mechanics of the markets in which these securities are traded; To develop an intuitive understanding of the “absence of arbitrage” principle, and describe how this principle is used to derive relationships between the values of derivatives and fundamental parameters such as interest rates, asset prices, etc. To quantify the relationship between forward price and spot price, and to illustrate the ways in which forward or futures contracts can be used to hedge risk; To define forward interest rates, and to establish the relationship between forward and spot rates, and the values of interest rate swaps, caps and floors; To develop models (Binomial, Black-Scholes) to describe the dynamics of underlying asset prices, and to derive theoretical methods for computing the values of derivative securities within the context of such models; To discuss and implement numerical procedures to calibrate aforementioned models so that they are consistent with observed market prices, and compute the values of derivative securities within these models; To examine the ways in which derivative securities can be used for risk management, and conversely, how the risk inherent in derivative securities can itself be measured and managed.

Principal learning outcomes

"Subject knowledge/Key Skills: Read and interpret price quotes of derivative securities in the financial press; Use computer software to implement pricing models and generate risk reports.Cognitive Skills: Assess and critically evaluate the benefits and risks involved in derivatives trading. Subject Specific/Professional Skills:Describe the characteristics of different types of derivative securities, and the way in which they can be used for risk management; Explain the principles of pricing derivatives by replication, and how these principles can be extended to cater for non-standard features; Implement numerical methods to construct pricing models, calibrate them to market data, and compute option prices from them."

Timetabled teaching activities

Total contact hours: 30 hrs. Lectures (over duration of course): 10 x 2 hour lectures. Seminars (over duration of course): 10 x 1 hour seminars. Module duration (weeks, if applicable): 10 week.

Departmental link

Module assessment

Assessment group Assessment name Percentage
15 CATS (Module code: IB9X7-15)
D (Assessed/examined work) Assessment 20%
  Examination (April) 80%

Module availability

This module is available on the following courses:



Optional Core
  • Postgraduate Behavioural Finance (N304) - Year 1
  • Postgraduate Behavioural Finance (N304) - Year 2
  • Postgraduate Behavioural Finance (N304) - Year 3
  • Postgraduate Behavioural Finance (N304) - Year 4
  • Postgraduate Taught Finance and Economics (LN1J) - Year 2
  • MSc in Finance (N300) - Year 2
  • Postgraduate Taught Finance with Behavioural Science (N301) - Year 2
  • MSc in Accounting and Finance (N4N3) - Year 2