Commodity Markets and Derivative Securities - ECO00056H
Module summary
The aim of the module is to describe the theory and practice of derivative securities that are used in the professional analysis of financial data and to provide theoretical and empirical discussion of some important features of commodity markets.
Related modules
Additional information
prerequisite modules: Microeconomic Theory, Introduction to Finance, Probability and Statistics
Module will run
| Occurrence | Teaching period |
|---|---|
| A | Semester 1 2023-24 |
Module aims
-
To enumerate and describe the various securities and markets in a clear and concise manner that accurately blends theory and practice
-
To outline the economic structure of physical commodity markets and analyse these using micro market models
-
To outline the modelling of forward and futures markets
-
To review some empirical applications
Module learning outcomes
On completing the module a student will be able to understand:
-
Examine the valuation of financial instruments such as options, futures and other derivatives.
-
To provide an introduction to the valuation of derivative securities.
-
Understanding the structure and properties of common derivatives such as forward contracts, futures contracts and options will be discussed.
-
Valuation methods will be developed and applied to different contracts of interest.
-
Understanding hedging policies and risk management aspects will be addressed.
-
Understand the principal problems and controversies that are peculiar to trade in primary commodities.
-
Understand the theoretical, institutional and empirical work related to commodity markets.
-
Understand commodity markets mechanism and their existence in the social interest
-
Understand some of the special features of futures markets in financial assets
-
Understanding primary commodities complicated market structure with spot and forward or futures markets.
-
Understand how to analyse simple market models theoretically in both static and dynamic forms; how to model the financial market superstructure and an appreciation of the empirical methods and results in the area.
Module content
The following topics will be covered:
-
Introduction to Derivative securities
-
Overview of Forward contract and Futures Markets
-
Hedging Strategies Using Futures
-
Mechanics of Options Markets
-
Binomial Trees
-
Wiener Processes and Ito’s Lemma
-
The Black-Scholes-Merton Model
-
Black-Scholes model: Empirical Issues and advances
in the literature
-
Overview of the Special Features of Commodity Markets
-
Theory of the Spot Market
-
Risk Management in the Spot Market: Intervention and Individual Adjustment
-
Risk Management in the Spot Market: Market Based Tools
-
Equilibrium in the Spot & Futures Market
-
The Price Discovery Role of Futures
-
Speculation & Financialisation of Commodities
Indicative assessment
| Task | % of module mark |
|---|---|
| Essay/coursework | 10 |
| Essay/coursework | 90 |
Special assessment rules
None
Indicative reassessment
| Task | % of module mark |
|---|---|
| Essay/coursework | 90 |
Module feedback
Marking and feedback within twenty-five working days following the submission of the research proposal.
Marking and feedback within twenty-five working days following the submission of the project report.
Indicative reading
Hull, J.C., 2017. Options, Futures, and Other Derivatives, Global Edition, Harlow, United Kingdom: Pearson Education Limited.
Björk, T., 2004. Arbitrage Theory in Continuous Time, Oxford: Oxford University Press.
Williams, Jeffrey author & Williams, Jeffrey, 1989. The economic function of futures markets paperback., Cambridge: Cambridge, Cambridge U.P.
Edwards, F.R. & Ma, Cindy W, 1992. Futures and options, New York ; London: McGraw-Hill.
Cuthbertson, K. & Nitzsche, Dirk, 2001. Financial engineering : derivatives and risk management, Chichester: John Wiley and Sons Ltd.
Phlips, L., Philips, Louis & Phlips, L., 1991. Commodity, futures and financial markets, Dordrecht ; London: Dordrecht ; London : Kluwer Academic.