Derivatives and Alternative Investments
Module title | Derivatives and Alternative Investments |
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Module code | BEF2013DA |
Academic year | 2023/4 |
Credits | 15 |
Module staff | Dr Mohamed Elshinawy (Convenor) |
Duration: Term | 1 | 2 | 3 |
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Duration: Weeks | 10 |
Number students taking module (anticipated) | 10 |
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Module description
This module is intended for BSc Applied Finance Degree Apprenticeship students who are looking to develop a sound knowledge in managing financial risk, exploiting investment opportunities and creating synthetic asset class exposure. The module introduces the basic principles of derivative pricing and the concept of arbitrage. You should be able to demonstrate a working knowledge of the analysis of derivatives, including forwards, futures, options and swap. An overview of the widely used alternative investments, including hedge funds, private equity, real estate, commodities and infrastructure investment is examined with emphasis on their distinguishing characteristics, considerations for valuation, and potential benefits and risks. Similarities and differences with traditional investment – stocks and bonds - are also considered.
Module aims - intentions of the module
This module builds the conceptual framework for understanding the basic derivatives and derivative markets. Essential features and valuation concepts for forward commitments, such as forwards, futures and swaps and contingent claims such as options are introduced. The purpose is to establish the foundations of derivative pricing on a basic conceptual level. The following topics are covered:
- How does the pricing of the underlying asset affect the pricing of derivatives?
- How are derivatives priced using the principle of arbitrage?
- How are the prices and values of forward contracts determined?
- How are future contracts priced differently form forward contracts?
- How are the prices and values of swaps determined?
- How are the prices and values of European options determined?
- How does American option pricing differ from European option pricing?
The module also introduces the basic characteristics and categories of alternative investments; general strategies of alternative investment portfolio managers; the role of alternative investments in a diversified portfolio; and investment structures used to provide access to alternative investments. You will be able to describe features of hedge funds, private equity, real estate, commodities, infrastructure, respectively, along with issues in calculating returns to and valuation of each. Other alternative investments and an overview of risk management, including potential benefits and risks, fee structures and due diligence of alternative investments, are presented.
Intended Learning Outcomes (ILOs)
ILO: Module-specific skills
On successfully completing the module you will be able to...
- 1. Describe purposes of, and controversies related to, derivative markets
- 2. Explain arbitrage and the role it plays in determining prices and promoting market efficiency
- 3. Define forward contracts, futures contracts, options, swaps and credit derivatives and compare their basic characteristics
- 4. Explain how the concepts of arbitrage, replication and risk neutrality are used in pricing derivatives
- 5. Compare alternative investments with traditional investments
- 6. Describe issues in valuing and calculating returns on hedge funds, private equity, real estate, commodities and infrastructure
- 7. Evaluate risk management of alternative investments
ILO: Discipline-specific skills
On successfully completing the module you will be able to...
- 8. Identify potential benefits of alternative investments in the context of portfolio management
- 9. Recognise the practice of risk management as a dynamic and ongoing process
- 10. Apply trading and risk management tools under supervision in real-world context
ILO: Personal and key skills
On successfully completing the module you will be able to...
- 11. Understand the impact the external environment has on Financial Services as appropriate to their role, together with relevant best practice.
- 12. Demonstrate a sound understanding of the relevant Financial Service products and services offered to clients/customers by their organisation
- 13. Deliver technical advice to clients/customers and implement product solutions
Syllabus plan
• Derivative markets and instruments
• Fundamental concepts of derivative pricing
• Pricing and valuation of forward commitments
• Pricing and valuation of options
• Alternative investments: hedge funds, private equity, real estate, commodities, infrastructure
• Risk management overview
Learning activities and teaching methods (given in hours of study time)
Scheduled Learning and Teaching Activities | Guided independent study | Placement / study abroad |
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34 | 116 |
Details of learning activities and teaching methods
Category | Hours of study time | Description |
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Scheduled Learning and Teaching | 14 | Workshops (over two days) |
Scheduled Learning and Teaching | 14 | Online lectures and seminars |
Scheduled Learning and Teaching | 6 | Revision |
Guided independent study | 116 | Reading and research, web-based activities |
Formative assessment
Form of assessment | Size of the assessment (eg length / duration) | ILOs assessed | Feedback method |
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Mock examination | 90 minutes | 1-7 | Answers explained in revision class |
Online discussion | Online discussion contributions | 1-13 | Online discussion feedback from peers and lecturer |
Weekly online practices | Six exercises | 1-10 | Correct answers on ELE |
Summative assessment (% of credit)
Coursework | Written exams | Practical exams |
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50 | 50 | 0 |
Details of summative assessment
Form of assessment | % of credit | Size of the assessment (eg length / duration) | ILOs assessed | Feedback method |
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Examination | 50 | 90 minutes | 1-7 | Feedback comments and meeting during office hours as needed |
Applied exercise/assignment | 50 | 2,000 words | 1-13 | Feedback comments and meeting during office hours as needed |
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0 |
Details of re-assessment (where required by referral or deferral)
Original form of assessment | Form of re-assessment | ILOs re-assessed | Timescale for re-assessment |
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Examination | Examination (90 minutes) | 1-7 | Next available opportunity |
Applied exercise/Assignment | Applied exercise/assignment (2,000 words) | 1-13 | Next available opportunity |
Re-assessment notes
Deferral – if you miss an assessment for certificated reasons judged acceptable by the Mitigation Committee, you will normally be either deferred in the assessment or an extension may be granted. The mark given for a re-assessment taken as a result of deferral will not be capped and will be treated as it would be if it were your first attempt at the assessment.
Referral – if you have failed the module overall (i.e. a final overall module mark of less than 40%) you will be required to submit a further assessment. The mark given for a re-assessment taken as a result of referral will count for 100% of the final mark and will be capped at 40%.
Indicative learning resources - Basic reading
- Derivatives and Alternative Investments, CFA® Program Curriculum Level I Volume 6, CFA Institute.
- Hull, J.C. (2018), Options, Futures, and Other Derivatives, 10th ed., Pearson.
Indicative learning resources - Web based and electronic resources
Credit value | 15 |
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Module ECTS | 7.5 |
Module pre-requisites | None |
Module co-requisites | None |
NQF level (module) | 5 |
Available as distance learning? | Yes |
Origin date | 28/02/2019 |
Last revision date | 28/11/2022 |