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Commodity Markets and Derivative Securities - ECO00056H

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  • Department: Economics and Related Studies
  • Module co-ordinator: Dr. Asif Ahmad
  • Credit value: 20 credits
  • Credit level: H
  • Academic year of delivery: 2024-25
    • See module specification for other years: 2023-24

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

Pre-requisite modules

Co-requisite modules

  • None

Prohibited combinations

  • None

Additional information

prerequisite modules: Microeconomic Theory, Introduction to Finance, Probability and Statistics

Module will run

Occurrence Teaching period
A Semester 1 2024-25

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

Assessment

Task Length % of module mark
Essay/coursework
Commodity Markets and Derivative Securities		 N/A 10
Essay/coursework
Project report		 N/A 90

Special assessment rules

None

Reassessment

Task Length % of module mark
Essay/coursework
Project report		 N/A 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.


The information on this page is indicative of the module that is currently on offer. The University is constantly exploring ways to enhance and improve its degree programmes and therefore reserves the right to make variations to the content and method of delivery of modules, and to discontinue modules, if such action is reasonably considered to be necessary by the University. Where appropriate, the University will notify and consult with affected students in advance about any changes that are required in line with the University's policy on the Approval of Modifications to Existing Taught Programmes of Study.