The course covers the market structure, use and pricing of futures and options, two key elements of financial markets. Both allow users to modify and transfer risks, take speculative positions, and develop investment strategies and the markets in which they are traded are significant elements of most advanced economies. Key questions as to their applications and pricing form a specialist area in finance. In particular, options involve the development of complex models for, pricing and monitoring their behaviour. A sub-element of the course will examine the use and pricing of interest rate and cross-currency swaps.

The Honours course Futures and Options is part of the suite of honours courses offered by the Business School in finance. It is normally taken in the third year of study of the MA degree at the University of Edinburgh, and is part of the finance progression stream. The course aims to provide students with the tools, knowledge and understanding of the derivative product set (that is, forward contracts, futures, swaps and options), how the instruments are priced, and the markets in which they are traded. The emphasis is on financial management and pricing. To integrate the discussion of these instruments, the course stresses the relationships that exist between the different instruments and, in particular, the various no-arbitrage and replication conditions that underlie the fair pricing of derivatives. Note that the course does not delve into the more advanced aspects of derivatives pricing such as stochastic processes, although some understanding of this is required.

✔ Outline Content:

• Introduction to Futures and Options

• Forward and Futures Prices and Using Futures

• Commodity Futures

• Swaps 1: Pricing

• Swaps 2: Application

• Introduction to Options and Option Strategies

• Pricing Options

• Extending the Models to Indices, Currencies and Futures

• The Greeks of Option Pricing:

• Exotic Options

Pre-requisites: Students MUST have passed: Principles of Finance (BUST08003) OR Introduction to Corporate Finance (BUST08030).

COURSE CODE

COURSE NAME

ACCN08007

Accountancy 1A

ACCN08008

Accountancy 1B

ACCN08009

Accountancy 2A

ACCN08012

Accounting for Business 1

BUST08003

Principles of Finance

BUST08004

Marketing

BUST08005

Business Economics

BUST08018

Applications of Finance

BUST08029

Introduction to Financial Markets

BUST08030

Introduction to Corporate Finance

BUST08033

Introduction to Data Analysis

BUST10012

Corporate Finance

BUST10023

Futures and Options

BUST10032

Investment and Securities Markets

ECNM08004

Economic Principles

ECNM08016

Statistical Methods for Economics

ECNM10052

Essentials of Econometrics

ECNM10056

Applications of Econometrics

ECNM10069

Topics in Macroeconomics

ECNM10070

Topics in Microeconomics

MATH08051

Statistics

PPLS08001

Research Methods and Statistics