MFE1111 — Options and other derivatives
Course description
This course focuses on options and others financial products in which they trade, more specifically, the following knowledge areas:
• Structures and functions of financial institutions
• Structure and mechanics of over-the-counter (OTC) and exchange markets
• Structure, mechanics and valuation of forwards, futures, swaps, and options
• Hedging with derivatives
• Interest rates and measures of interest rate sensitivity
• Foreign exchange risk
• Corporate bonds
• Mortgage-backed securities
Course requirements
Requirements for Final Examination
Attendance score must be at least 5 (according to University regulations).
See Appendix 2, Rubric 1 for attendance evaluation.
Requirements for Class Attendance
Students are expected to attend at least 80% of all scheduled classes.
Any absence must be properly documented (e.g., medical certificate) and approved by the instructor.
Requirements for In-class Behaviour
Students are expected to arrive on time and remain until the end of the class.
Mobile phones and electronic devices should only be used for learning purposes.
Respectful and professional behaviour towards peers and instructors is mandator
Teaching plan
Week 1
Greeting and course introduction, its logic, its role and position in the program
References
Syllabus
Activities
Lecturer introduces the course
Lecturer sets learning requirements
Lecturer instructs students to read documents
Lecturer instructs students to find documents
Lecturer instructs to group work
Lecturer divides students into working groups
Assessment
Level of participation
Level of interaction
Quality of answers
Week 1
Chapter 1. Introduction to Derivatives
1.1 The Markets
1.2 Forward Contracts
1.3 Futures Contracts
1.4 Options
1.5 Market Participants
1.6 Derivatives Risks
References
Financial market and products book, garp.org/frm, 2025
Activities
Students have to read the related contents before coming to class
Lecturer euips students with theorical information
Student have to discuss the circumstances and questions asked by the lecturer
Assessment
Level of participation
Level of interaction
Quality of in-class answers and exams
Week 3
Chapter 2. Exchanges and OTC Markets
2.1 Exchanges – Central Counterparties
2.2 How CCPs Handle Credit Risk
2.3 Use of Margin Accounts in Other Situations
2.4 Over-the-Counter Markets
References
Foundations of Risk Management book, garp.org/frm, 2022.
Activities
Students have to read the related contents before coming to class
Lecturer euips students with theorical information
Students have to discuss the circumstances and questions asked by the lecturer
Assessment
Level of participation
Level of interaction
Quality of in-class answers and exams
Week 5
Chapter 3. Central Clearing
3.1 Why Central Clearing Matters
3.2 Clearing Houses and Risk Management
3.3 Collateral and Margining
3.4 Role in Financial Stability
References
Foundations of Risk Management book, garp.org/frm, 2022.
Activities
Students have to read the related contents before coming to class
Lecturer euips students with theorical information
Students have to discuss the circumstances and questions asked by the lecturer
Assessment
Level of participation
Level of interaction
Quality of in-class answers and exams
Week 7
Chapter 4. Futures Markets
4.1 Structure of Futures Markets
4.2 Trading Futures
4.3 Pricing of Futures
4.4 Delivery and Settlement
References
Foundations of Risk Management book, garp.org/frm, 2022.
Activities
Students have to read the related contents before coming to class
Lecturer euips students with theorical information
Student have to discuss the circumstances and questions asked by the lecturer
Assessment
Level of participation
Level of interaction
Quality of in-class answers and exams
Week 8
Chapter 5. Using Futures for Hedging
5.1 Basic Hedging Strategies
5.2 Hedging with Stock Index Futures
5.3 Cross Hedging
5.4 Limitations of Hedging
References
Foundations of Risk Management book, garp.org/frm, 2022.
Activities
Students have to read the related contents before coming to class
Lecturer euips students with theorical information
Student have to discuss the circumstances and questions asked by the lecturer
Assessment
Level of participation
Level of interaction
Quality of in-class answers and exams
Week 9
Chapter 6. Foreign Exchange Markets
6.1 Spot FX
6.2 Forward FX
6.3 FX Swaps
6.4 FX Risk and Hedging
References
Foundations of Risk Management book, garp.org/frm, 2022.
Activities
Students have to read the related contents before coming to class
Lecturer euips students with theorical information
Students have to discuss the circumstances and questions asked by the lecturer
Assessment
Level of participation
Level of interaction
Quality of in-class answers and exams
Week 11
Chapter 7. Pricing Forwards
7.1 Cost of Carry Model
7.2 Arbitrage Arguments
7.3 Forward Rate Agreements
References
Valuation and Risk models book, garp.org/frm, 2022.
Activities
Students have to read the related contents before coming to class
Lecturer euips students with theorical information
Students have to discuss the circumstances and questions asked by the lecturer
Assessment
Level of participation
Level of interaction
Quality of in-class answers and exams
Week 12
Chapter 8. Commodity Forwards and Futures
8.1 Pricing Commodity Forwards
8.2 Convenience Yield
8.3 Futures vs Forwards on Commodities
References
Valuation and Risk models book, garp.org/frm, 2022.
Activities
Students have to read the related contents before coming to class
Lecturer euips students with theorical information
Students have to discuss the circumstances and questions asked by the lecturer
Assessment
Level of participation
Level of interaction
Quality of in-class answers and exams
Week 13
Chapter 9. Options Markets
9.1 Option Basics
9.2 Types of Options
9.3 Option Payoffs
9.4 Option Markets
References
Valuation and Risk models book, garp.org/frm, 2022.
Activities
Students have to read the related contents before coming to class
Lecturer euips students with theorical information
Students have to discuss the circumstances and questions asked by the lecturer
Assessment
Level of participation
Level of interaction
Quality of in-class answers and exams
Week 14
Chapter 10. Properties of Options
10.1 Option Relationships
10.2 Put-Call Parity
10.3 Bounds on Option Prices
References
Foundations of Risk Management book, garp.org/frm, 2022.
Activities
Students have to read the related contents before coming to class
Lecturer euips students with theorical information
Students have to discuss the circumstances and questions asked by the lecturer
Assessment
Level of participation
Level of interaction
Quality of in-class answers and exams
Week 14
Present group exercise.
Activities
Groups report and answer questions
Lecturer and class members comments
Assessment
Assessment sheet with the following criterium: (i) Content; (ii) ; (iii) Attractive and persuasive presentation; (iv) Degree of cooperation in answering questions; (v) Presentation time
Week 15
Complete group exercise. Analysis report of marketing activities in a specific unit
Activities
Groups submit reports
Lecturer evaluates reports
Assessment
Assessment sheet with the following criterium: (i) Content; (ii); (iii) Time; (iv) Cross-evaluation
Final exam
Activities
Students take exams according to givem schedule
Assessment
According to the exam requirement
Learning resources
- 1. Course Books
- Financial market and products book, garp.org/frm, 2025
- . Options — Hull, J. C., & Basu, S., futures, 2016
- 2. References
- Standard lecture notes/slides 2025
- 3. Other resources available at the University Library
- Robert L. McDonald — Robert L. McDonald, Pearson, 2015