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ICM231 - Financial Instruments

ICM231-Financial Instruments

Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Level:7
Terms in which taught: Spring term module
Pre-requisites:
Non-modular pre-requisites:
Co-requisites:
Modules excluded:
Current from: 2023/4

Module Convenor: Dr Nadia Kappou
Email: k.kappou@icmacentre.ac.uk

Type of module:

Summary module description:

Having established the theoretical basis for security valuation in Part I, this module extends students’ understanding to the valuation of financial instruments and their applications. The module has a significant practical component with seminars that are designed to support the lecture material.


Aims:

The module aims to introduce the main concepts of derivatives pricing and expand students' knowledge of financial derivatives across the main asset classes: equity, FX, interest rate and credit markets. It sets the right mind-set on how to price financial products and use them in risk management. 



 


Assessable learning outcomes:

By the end of the module, it is expected that students will:  




  • Describe Equity and FX futures, vanilla and exotic equity options, their pay-offs and some simple analytic pricing approximations  

  • Explain how to value some of the most popular swap varieties, and how they may be used for managing risk

  • Discuss the motivation for engineering structured products  

  • Value caps, floors and swaptions, which are widely used in interest rate markets  

  • Value convertible bonds and understand the interplay between market and credit risk factors  

  • Outline the basic credit derivatives, including total return and default swaps; and outline how to price and hedge basket derivatives including collateralized debt obligations


Additional outcomes:

Students will have a deep understanding of all the types of risks that are embedded in listed and OTC derivatives structures across all asset classes.


Outline content:


  • Equity and FX Futures, Forwards and Options  

  • Option prices, sensitivities and empirical evidence  

  • Exotic Options  

  • Interest Rate Futures, Forwards and Swaps  

  • Convertible Securities  

  • Caps, Floors and Swaptions  

  • Credit Derivatives  

  • Structured Credit Products (MBS, CDO, ABCP)


Brief description of teaching and learning methods:

Core lectures supported by classroom based tutor led discussion. Numerical exercises will require advanced use of Excel spreadsheets, as well as Bloomberg and Reuters applications.


Contact hours:
  Autumn Spring Summer
Lectures 20
Seminars 6
Guided independent study:      
    Wider reading (independent) 20
    Wider reading (directed) 47
    Exam revision/preparation 50
    Advance preparation for classes 5
    Preparation for tutorials 12
    Revision and preparation 40
       
Total hours by term 0 0
       
Total hours for module 200

Summative Assessment Methods:
Method Percentage
Written exam 70
Class test administered by School 30

Summative assessment- Examinations:

One 2-hour written examination (70% of final mark)



The examination for this module will require a narrowly defined time window and is likely to be held in a dedicated exam venue.


Summative assessment- Coursework and in-class tests:

Two 1-hour Multiple-choice Tests (15% of final mark each). Test 1 is scheduled within the last two weeks of the spring term and Test 2 within the first two weeks of the summer term.


Formative assessment methods:

Penalties for late submission:

Penalties for late submission on this module are in accordance with the University policy. Please refer to page 5 of the Postgraduate Guide to Assessment for further information: http://www.reading.ac.uk/internal/exams/student/exa-guidePG.aspx



 


Assessment requirements for a pass:

A minimum mark of 50%


Reassessment arrangements:

Re-assessment in August by written examination


Additional Costs (specified where applicable):

Text books: £70.00



Computers and devices with a particular specification: £15


Last updated: 30 March 2023

THE INFORMATION CONTAINED IN THIS MODULE DESCRIPTION DOES NOT FORM ANY PART OF A STUDENT'S CONTRACT.

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