FINA3306 Derivative Strategies and Pricing

Credit
6 points
Offering
(see Timetable)
AvailabilityLocationMode
Semester 2UWA (Perth)Face to face
Details for undergraduate courses
  • Level 3 option in the Finance major sequence
  • Category B broadening unit for students
  • Level 3 elective
Content
This unit builds on the Level 2 unit FINA2204 Derivative Products and Markets to study the kinds of derivatives used in practice, the principles of pricing them, and their applications in the modern financial world. The unit develops the theoretical frameworks, financial, probabilistic and statistical, essential to understanding modern practices in derivative pricing and applications such as portfolio insurance, dynamic hedging and risk management. The Black-Scholes-Merton framework and risk-neutral valuation are explored. The unit also looks at the role derivatives have played in financial crises.
Outcomes
Students are able to (1) demonstrate how to value a variety of derivative contracts and strategies; (2) identify potential arbitrage opportunities and utilise these to price derivatives; (3) understand the Black-Scholes-Merton option pricing framework, its assumptions, derivation and implications; (4) explore volatility structures (such as smiles and smirks) and their relation to theoretical pricing models; (5) use industry relevant tools (such as spreadsheets and financial information systems) to access, process and calculate derivative prices; (6) explain the risks embedded in financial derivatives and how they have contributed to past financial crises; and (7) demonstrate the ability to give oral presentations that are clear and coherent.
Assessment
Typically this unit is assessed in the following ways: (1) tutorial presentations ; (2) assignments; and (3) examination. Further information is available in the unit outline.

Supplementary assessment is not available in this unit except in the case of a bachelor's pass degree student who has obtained a mark of 45 to 49 overall and is currently enrolled in this unit, and it is the only remaining unit that the student must pass in order to complete their course.
Unit Coordinator(s)
Dr Keith Godfrey
Unit rules
Prerequisites:
FINA2204 Derivative Products and Markets
and
FINA2205 Quantitative Methods for Finance
Contact hours
lectures/tutorials/seminars/workshops: up to 3 hours per week
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