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Course Description
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Course Name
Derivative Securities
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Host University
University of Glasgow
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Location
Glasgow, Scotland
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Area of Study
Accounting, Finance
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Language Level
Taught In English
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Prerequisites
Finance 2
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Course Level Recommendations
Upper
ISA offers course level recommendations in an effort to facilitate the determination of course levels by credential evaluators.We advice each institution to have their own credentials evaluator make the final decision regrading course levels.
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SCQF Credits
20 -
Recommended U.S. Semester Credits5
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Recommended U.S. Quarter Units7
Hours & Credits
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Overview
The course provides an understanding of the uses and the valuation of the main derivative financial instruments: futures, swaps and options. It covers the trading mechanisms used on derivative markets and explains the fundamental principles underlying the pricing of derivative instruments and their use in portfolio management. Particular attention is paid to the practicalities of using derivative instruments for risk management purposes. The course also provides an introduction to the working of the foreign exchange market and the instruments traded thereon. Related institutional aspects are introduced where necessary.
By the end of this course students will be able to:1. Define a derivative and differentiate between exchange-traded and over-the-counter derivatives. Discuss the purposes and criticisms of derivative markets.2. Explain how futures and forwards can be used by hedgers and speculators.3. Calculate forward prices for investment assets with and without income.4. Calculate the value of a forward contract.5. Define a swap contract and explain how the swap market works. Show how interest rate swaps may be used to transform a liability or an asset.6. Discuss the comparative advantage argument in favour of interest rate swaps and explain why it is flawed.7. Perform valuation of an interest rate swap.8. Explain how to use currency swaps and the comparative advantage argument for currency swaps.9. Perform valuation of a currency swap.10. Define the basic characteristics of equity option (put and call) contracts. Explain how option payoffs are determined.11. Explain how option prices are affected by the time to expiration, the price of the underlying instrument, volatility and the market rate of interest.12. Explain the use of a variety of option trading strategies such as short straddles and long butterflies13. Understand the derivation of the put-call parity theorem. Apply the put-call parity theorem.14. Calculate the fair value of a call option contract using binomial option pricing model.15. Explain the assumptions underlying the Black?Scholes?Merton option pricing model and their limitations.16. Calculate the fair value of a call option contract using the Black?Scholes?Merton option pricing model.
Course Disclaimer
Courses and course hours of instruction are subject to change.
Credits earned vary according to the policies of the students' home institutions. According to ISA policy and possible visa requirements, students must maintain full-time enrollment status, as determined by their home institutions, for the duration of the program.
ECTS (European Credit Transfer and Accumulation System) credits are converted to semester credits/quarter units differently among U.S. universities. Students should confirm the conversion scale used at their home university when determining credit transfer.
Please note that some courses with locals have recommended prerequisite courses. It is the student's responsibility to consult any recommended prerequisites prior to enrolling in their course.