HONG KONG BAPTIST UNIVERSITY
COURSE OUTLINE
1. COURSE TITLE
Introduction to Futures and Options Markets
2. COURSE CODE
FINE3006
3. NO. OF UNITS
3 Units
4. OFFERING DEPARTMENT
Department of Finance and Decision Sciences
5. PREREQUISITES
FINE3005 Investment Management
6. MEDIUM OF INSTRUCTION
English
7. AIMS & OBJECTIVES
This course introduces students to futures, options, and other derivative contracts. Class
lectures will be focused on the theoretical aspects of these securities; however, students'
understanding of the practical issues relating to these contracts for the local and foreign
markets will be enhanced by their work on a term project.
8. COURSE CONTENT
I. Introduction
Forward Contracts, Futures Contracts, Options Contracts
Hedging, Speculation, and Arbitrage with Forward and
Futures Contracts
Stock Index Futures, Currency Futures
Call and Put Options Contracts, Hedging, Speculation, and
Arbitrage with Options Contracts
Operations, Trading Mechanism, and
Margin Requirements
II. Expiration-Day Payoff Patterns of Futures and Forward Contracts
Option Strategies, Naked Positions,
Spreads and Combinations
III. The Pricing of Futures and Forward Contracts
Normal Backwardation versus Contango,
Expectation Theory and Portfolio Theory,
Arbitrage Mechanisms, Cost of Carry Models,
and Convenience Yield, The Difference
Between Futures and Forward Contracts –
The Arbitrage Relationships
Pricing of Stock Index Futures and Currency Futures
IV. Expiration-Day Payoff Patterns of Options
Option Strategies, Naked Positions, Spreads and Combinations
V. The Pricing of Options Contracts
Upper and Lower Price Boundaries for Call and Put Options
Binomial Option Pricing Model, Black and Scholes
Option Pricing Model, The Relationship between
the Binomial Model and B-S, Discussions of Risk
Parameters, e.g. Delta, Gamma, Vega etc.
VI. Other Derivative Contracts
Swaps: Interest Rate Swaps, Currency Swaps, and
Currency Coupon Swaps, Caps and Collars,
Swaptions or Options on Swaps, and Warrants
9. COURSE INTENDED LEARNING OUTCOMES (CILOs)
CILO By the end of the course, students should be able to:
CILO 1 Analyse and price futures/forward contracts and options contracts.
CILO 2 Use information from option and futures markets to form their market views.
CILO 3 Use arbitrage arguments in pricing derivative securities.
CILO 4 Use arbitrage arguments to analyse the price dynamics of derivative securities.
CILO 5 Devise hedging, trading, and arbitrage strategies with futures, options, and cash
positions to reveal specific market views.
10. TEACHING & LEARNING ACTIVITIES (TLAs)
CILO
alignment
Type of TLA
1,2,3,4,5 Lecture
1,2,3,4,5 Case Study
1,2,3,4,5 Project
1,2,3,4,5 Exercises and problems
11. ASSESSMENT METHODS (AMs)
Type of
Assessment
Methods
Weighting CILOs to be
addressed
Description of Assessment Tasks
Assignment(s
)
100 % 1,2,3,4,5 Individual project/paper
(50% homework & 50% individual project)
Last Update: 2020-08-31
Published Date: 2020-11-16
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