FINAN519-22B (HAM)

Derivatives

15 Points

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Division of Management
School of Accounting, Finance and Economics

Staff

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Convenor(s)

Nirosha Hewa Wellalage

Nirosha Hewa Wellalage
4196
MSB.3.19
See Moodle
nirosha.hewawellalage@waikato.ac.nz

Lecturer(s)

Administrator(s)

: denise.martin@waikato.ac.nz

Placement/WIL Coordinator(s)

Tutor(s)

Student Representative(s)

Lab Technician(s)

Librarian(s)

: yilan.chen@waikato.ac.nz

You can contact staff by:

  • Calling +64 7 838 4466 select option 1, then enter the extension.
  • Extensions starting with 4, 5, 9 or 3 can also be direct dialled:
    • For extensions starting with 4: dial +64 7 838 extension.
    • For extensions starting with 5: dial +64 7 858 extension.
    • For extensions starting with 9: dial +64 7 837 extension.
    • For extensions starting with 3: dial +64 7 2620 + the last 3 digits of the extension e.g. 3123 = +64 7 262 0123.
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Paper Description

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This paper covers options, forward contracts, futures contracts, and swaps. By the end of this course you will have a good knowledge of how these contracts work, how they are used, and how they are priced. Students will also learn how to understand downside risk and time variations of risk proxies.

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Paper Structure

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The paper will be taught through lectures and students’ performance will be evaluated by Assignments and Tests.

There will be a series of lectures every week.

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Learning Outcomes

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Students who successfully complete the paper should be able to:

  • Understand why we trade derivative securities [LO1]

    Understand why we trade derivative securities (e.g., forward, futures and option), how these contracts work and how they are used.

    Linked to the following assessments:
  • Understand how to establish trading strategies using forward/futures contracts [LO2]
    Learn how to hedge risks, to speculate and to lock in an arbitrage profit via forward and futures contracts.
    Linked to the following assessments:
  • Understand the techniques of risk evaluation such as Value at Risk (VaR). Students are able to understand conditional volatility model such as GARCH. [LO3 ]
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  • Illustrate pricing mechanism and properties of normal types of swaps and credit default swap (CDS). [LO4]
    Linked to the following assessments:
  • Understand different trading strategies using option contracts [LO5]

    Learn how to hedge risks, speculate and lock in an arbitrage profit via option contracts.

    Linked to the following assessments:
  • Determine valuation of option contracts [LO6]

    Learn how to price option contracts (e.g., binomial trees, and the Black-Scholes model).

    Linked to the following assessments:
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Assessment

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To be eligible to pass this paper, students must achieve an overall grade of at least 50% in the whole paper.

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Assessment Components

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The internal assessment/exam ratio (as stated in the University Calendar) is 100:0. There is no final exam. The final exam makes up 0% of the overall mark.

The internal assessment/exam ratio (as stated in the University Calendar) is 100:0 or 0:0, whichever is more favourable for the student. The final exam makes up either 0% or 0% of the overall mark.

Component DescriptionDue Date TimePercentage of overall markSubmission MethodCompulsory
1. Assignment 1
18 Aug 2022
5:00 PM
20
  • Online: Submit through Moodle
2. Assignment 2
15 Sep 2022
5:00 PM
25
  • Online: Submit through Moodle
3. Final Test
6 Oct 2022
3:00 PM
30
  • In Class: In Test
4. Assignment 3
3 Nov 2022
5:00 PM
25
  • Online: Submit through Moodle
Assessment Total:     100    
Failing to complete a compulsory assessment component of a paper will result in an IC grade
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Required and Recommended Readings

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Required Readings

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There is no required textbook for this paper. Instead, we have two highly recommended texts as follows:

Fundamentals of Futures and Options Markets, by John C. Hull, Sirimon Treepongkaruna, Richard Heaney, David Pitt, and David Colwell. 7th Edition, Pearson.

Hull, J.C. (2017). Options, Futures, And Other Derivatives. 9th Edition. Pearson Education Limited.

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Recommended Readings

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https://rl.talis.com/3/waikato/lists/657953A7-E1FB-2F6A-A8D6-1F9CE2AB7D3F.html?lang=en-NZ&login=1

For additional readings of this paper, refer to Waikato Reading List. Note that this list contains a pool of research papers for lectures and internal assessment.

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Other Resources

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Other teaching materials will be provided online via Moodle where necessary.

Please contact the Paper Convenor for further details.

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Online Support

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All the resources about this paper will be available on Moodle. Research papers are available via Reading List. The online resources may be updated where necessary.
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Workload

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There are 150 learning hours for this paper. They will be spent on the following activities:

Attend lectures

Read teaching materials and research articles

Prepare and write assignments

Prepare for and sit the final test

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Linkages to Other Papers

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PREREQUISITE(S)

Prerequisite papers: FINA311 or FINA312

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Prerequisite(s)

Corequisite(s)

Equivalent(s)

Restriction(s)

Restricted papers: FINA519

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