ICM107-Securities, Futures and Options

Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Level:7
Terms in which taught: Autumn term module
Pre-requisites:
Non-modular pre-requisites:
Co-requisites:
Modules excluded:
Current from: 2022/3

Module Convenor: Dr Nadia Kappou
Email: k.kappou@icmacentre.ac.uk

Type of module:

Summary module description:

Securities, Futures and Options provides learners with the relevant financial knowledge for analysing and valuing different classes of risky assets. It begins with the description of all main asset classes and the basic theory behind market efficiency and investors’ attitude towards financial risk. It then analyses the main framework behind portfolio theory and optimum asset allocation, followed by the introduction of the main pricing models, their applications and limitations. Furthermore, the module provides an in-depth introduction to financial derivatives (futures and options) and their valuation. All the techniques introduced are widely applied in other elements of the programme.

Aims:

Securities, Futures and Options introduces techniques for analysing and valuing different classes of risky assets. It also develops ways of optimally selecting portfolios of such assets and develops models of how these portfolios may be priced in financial markets.

Assessable learning outcomes:

By the end of the module, the student will be able to: discuss the theoretical basis for the economic analysis of risk; assess the characteristics of individual assets and portfolios of risky assets; construct the mean-variance efficient frontier and identify the optimal risky portfolio for a given universe of risky assets; explain the role of beta as a risk measure in the capital market equilibrium described by the CAPM; discuss the use of the no-arbitrage principle to the pricing of risky a ssets and describe the basic features of the arbitrage pricing theory; explain the fundamentals of forward and futures contracts, their valuation and use in simple hedging strategies; outline financial options, their characteristics and valuation. Apply their knowledge of real world pricing and trading strategies (INVEST sessions).

Additional outcomes:

The students will develop familiarity with sources of financial market data and gain experience in analysing this data in ways closely related to market practice. The seminars will provide students with an opportunity to propose and defend explanations for the observed behaviour of investors and the resulting pattern of returns on risky assets.

Outline content:

Topic 1Ìý Ìý Financial assets and investing in securities markets, NPV and stock valuation

Topic 2Ìý Ìý Choice under uncertainty

Topic 3Ìý Ìý Portfolio theory

Topic 4Ìý Ìý The capital asset pricing model

Topic 5Ìý Ìý Arbitrage pricing theory

Topic 6Ìý Ìý The efficient markets hypothesis

Topic 7Ìý Ìý Forwards and Futures

Topic 8aÌý ÌýIntroduction to Options

Topic 8bÌý Options’ basic properties and valuation

Brief description of teaching and learning methods:

1. Lectures: Ten two-hour lectures cover the topics

2. Seminars: students meet in small groups for a series of seminars. Seminar discussions are based on non-assessed coursework set by the instructors.

3. INVEST Sessions with Grade Point Cash counting towards the final grade.Ìý

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Summative assessment- Examinations:

2.5 hourÌýmultiple-choice examination (60% of final mark)

Summative assessment- Coursework and in-class tests:

Coursework: Group project (up to 6 students in each group), assessing both theoretical and practical elements of the module, (written report of up to 2,500 words, excluding spread-sheet workings and mathematical results). 30% of final mark. Submission date is scheduled within the last two weeks of the autumn term.

INVEST mark (grade point cash): 10% of final mark (full-time programme only). Two assessed trading sessions, taking place over the last two weeks of the autumn term, each counting for 5% of the final mark.

Formative assessment methods:

Penalties for late submission:

The below information applies to students on taught programmes except those on Postgraduate Flexible programmes. Penalties for late submission, and the associated procedures, which apply to Postgraduate Flexible programmes are specified in the policy £Penalties for late submission for Postgraduate Flexible programmes£, which can be found here: