ICM308: Stock Index Futures

Module code: ICM308

Module provider: ICMA Centre; Henley Business School

Credits: 20

Level: Postgraduate Masters

When you'll be taught: Summer (vacation) semester

Module convenor: Professor Charles Sutcliffe, email: c.sutcliffe@icmacentre.ac.uk

Pre-requisite module(s):

Co-requisite module(s):

Pre-requisite or Co-requisite module(s):

Module(s) excluded:

Placement information: NA

Academic year: 2024/5

Available to visiting students: Yes

Talis reading list: No

Last updated: 28 May 2024

Overview

Module aims and purpose

The aim of this module is to give students an understanding of the very large and important global financial markets in futures on national stock market indices. 

This is a less quantitative option that offers an in-depth study of an important financial product - stock index futures.  

For almost all countries, the value of trading in stock index futures exceeds the total value of trading in all the equities listed on the underlying stock market. So stock index futures are very liquid financial instruments with an important role in financial markets. They are used by fund managers, arbitrageurs, hedgers, speculators, investment banks, pension funds, etc. for a wide variety of reasons.  

The aim of this module is to understand why this very large market exists, and how it works.   

Much of this material on how stock index futures markets work also applies to other futures markets, e.g. currencies, energy, metals, agricultural commodities.

Module learning outcomes

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

• discuss the different ways of constructing stock market indices and the implications of these differences,  and describe various features and characteristics of the process of trading stock index futures  
• discuss the identity and characteristics of some of the close substitutes for stock index futures, and explain how stock index futures can be pr iced using a simple arbitrage relationship 
• discuss basis and spread trading of stock index futures, and explain how stock index futures can be used for hedging the price risk of the underlying basket of shares  
• evaluate various other uses that fund managers make of stock index futures, and critically evaluate the design and regulation of stock index futures

Module content

1. Stock Market Indices 
2. Introduction to Trading Stock Index Futures 
3. Arbitrage and the Valuation of Stock Index Futures 
4. Arbitrage in Practice of Stock Index Futures 
5. Basis and Spread Trading of Stock Index Futures 
6. Maturity, Price Volatility and Volume of Stock Index Futures 
7. Market Efficiency of Stock Index Futures 
8. Hedging Using Stock Index Futures 
9. The Uses of Stock Index Futures by Fund Managers 
10. The Design and Regulation of Stock Index Futures

Structure

Teaching and learning methods

Lectures are used to introduce the concepts covered in this module.  

The seven seminars allow students to discuss short numerical classwork problems which illustrate the concepts covered in this module. 

Study hours

At least 27 hours of scheduled teaching and learning activities will be delivered in person, with the remaining hours for scheduled and self-scheduled teaching and learning activities delivered either in person or online. You will receive further details about how these hours will be delivered before the start of the module.

Please note the independent study hours above are notional numbers of hours; each student will approach studying in different ways. We would advise you to reflect on your learning and the number of hours you are allocating to these tasks.

Semester 1 The hours in this column may include hours during the Christmas holiday period.

Semester 2 The hours in this column may include hours during the Easter holiday period.

Summer The hours in this column will take place during the summer holidays and may be at the start and/or end of the module.

Assessment

Requirements for a pass

50% weighted average mark

Summative assessment

Penalties for late submission of summative assessment

The Support Centres will apply the following penalties for work submitted late:

Assessments with numerical marks

• where the piece of work is submitted after the original deadline (or any formally agreed extension to the deadline): 10% of the total marks available for that piece of work will be deducted from the mark for each working day (or part thereof) following the deadline up to a total of three working days;
• the mark awarded due to the imposition of the penalty shall not fall below the threshold pass mark, namely 40% in the case of modules at Levels 4-6 (i.e. undergraduate modules for Parts 1-3) and 50% in the case of Level 7 modules offered as part of an Integrated Masters or taught postgraduate degree programme;
• where the piece of work is awarded a mark below the threshold pass mark prior to any penalty being imposed, and is submitted up to three working days after the original deadline (or any formally agreed extension to the deadline), no penalty shall be imposed;
• where the piece of work is submitted more than three working days after the original deadline (or any formally agreed extension to the deadline): a mark of zero will be recorded.

Assessments marked Pass/Fail

• where the piece of work is submitted within three working days of the deadline (or any formally agreed extension of the deadline): no penalty will be applied;
• where the piece of work is submitted more than three working days after the original deadline (or any formally agreed extension of the deadline): a grade of Fail will be awarded.

The University policy statement on penalties for late submission can be found at: https://www.reading.ac.uk/cqsd/-/media/project/functions/cqsd/documents/qap/penaltiesforlatesubmission.pdf

You are strongly advised to ensure that coursework is submitted by the relevant deadline. You should note that it is advisable to submit work in an unfinished state rather than to fail to submit any work.

Formative assessment

Formative assessment is any task or activity which creates feedback (or feedforward) for you about your learning, but which does not contribute towards your overall module mark.

The seven classworks, with about three to five short numerical questions in each, allow students to improve their understanding of the material covered in the lectures.  

Feedback on these problems is provided in the classes.  

The mark on the multiple choice test provides feedback on performance that is available before the second in-class test. 

Reassessment

Additional costs