- Department: Economics and Related Studies
- Module co-ordinator: Dr. Asif Ahmad
- Credit value: 20 credits
- Credit level: H
- Academic year of delivery: 2023-24
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.
prerequisite modules: Microeconomic Theory, Introduction to Finance, Probability and Statistics
|A||Semester 1 2023-24|
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
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.
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
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
|Task||Length||% of module mark|
Commodity Markets and Derivative Securities
|Task||Length||% of module mark|
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.
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.