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Masters (MSc) in Finance

Learn the finance essentials; from derivatives and investments, to mergers and acquisitions and global markets.

This master's in finance enables you to work with our award-winning finance experts to build in-demand quantitative skills. You will gain the essential information needed to pursue a range of exciting finance careers at an international level.

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This course is ranked 7th in the UK and 22nd globally (QS Business Masters Rankings 2019)

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The MSc Finance course has both CFA Institute Affiliate status and Economic and Social Research Council (ESRC) status which positions you to progress to a research degree. It is also linked to The Manchester Accounting and Finance Group – one of the leading accounting and finance units in Europe.

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MSc Finance / Course details

Year of entry: 2019

Course unit details:
Derivative Securities

Unit code BMAN70141
Credit rating 15
Unit level FHEQ level 7 – master's degree or fourth year of an integrated master's degree
Teaching period(s) Semester 1
Offered by Alliance Manchester Business School
Available as a free choice unit? No

Overview

This course introduces students to important financial derivatives. The course starts with more basic material, such as forwards, futures, and plain-vanilla options. In that part of the course, students learn how these derivatives are defined, the markets they are traded in, and for what purposes they can be used. The course also derives several important arbitrage bounds and valuation formulas using either binomial trees or continuous stochastic processes. The course then continues with more advanced material. Among the more advanced material is the valuation of complex derivatives using numerical methods (such as Monte-Carlo simulation, finite difference methods, and the Longstaff-Schwartz least-squares method), a (mostly intuitive) introduction to exotic options (such as forward-start, gap, barrier, compound options, etc.), a (mostly intuitive) introduction to non-Black-Scholes valuation models (such as mixed jump-diffusion and stochastic volatility models), and value-at-risk (VaR).
 
The course is taught via ten two-hour lectures. There are no tutorials or workshops. There is however a large amount of self-study material online (including last year’s exam papers). The course is assessed with a (closed-book) exam and a coursework assignment. In the coursework assignment, students work in groups to use numerical methods to value complex derivatives.
 

Pre/co-requisites

BMAN70141 Programme Req: BMAN70141 is only available as a core unit to students on MSc Quantitative Finance and MSc Mathematical Finance, and as an elective to students on MSc Finance

This course, or similar course at UG level, must be undertaken if you wish to take BMAN70192 Real Options in Corporate Finance in Semester 2

Aims

The course equips students with essential techniques useful for valuing financial derivatives and hedging financial risk. The course emphasizes the general prin-ciples central to derivatives valuation, including no-arbitrage arguments and risk-neutral valuation methods, together with their implications for the pricing of finan-cial derivatives. It also discusses some more advantage topics, such as valuing derivatives using Monte-Carlo simulations and finite difference methods, using alternatives to the Black-Scholes model, such as the constant elasticity of vari-ance (CEV) model, the mixed jump-diffusion model, and stochastic volatility mod-els, or calculating a financing institution’s value at risk (VaR). All topics are intro-duced from an intuitive – and not a mathematically rigorous – perspective. 

Learning outcomes

On completion of this unit successful students have

  • Be familiar with the most common derivatives traded in financial markets;
  • Have some broad knowledge about how derivative contracts have developed over time, are quoted in the press, are traded in financial markets, etc.;
  • Be able to understand, from an intuitive perspective, how derivative securities are valued, using replication approaches or risk-neutral valuation approaches;
  • Be able to understand how derivative securities can be used in financial markets to either increase (speculate) or decrease risk (hedging);
  • Be able to solve standard exercises involving the calculation of derivative values/prices or the optimal number of derivative contracts used for hedging
  • Be aware of alternatives to the commonly used Black-Scholes option valuation model, such as mixed jump-diffusion and stochastic volatility models;
  • Have some broad knowledge about important exotic options;
  • Be able to use Monte-Carlo simulations, the implicit and explicit finite difference methods and the Longstaff and Schwartz (2001) least squares regression approach to value more complicated (exotic) derivatives;
  • Be able calculate value-at-risk value-at-risk using standard approaches;
  • Be able to exercise a capacity for independent and self-managed learning;

Assessment methods

Coursework project (25%)

Written Examination (75%) 1 ½ hour 

Feedback methods

  • Informal advice and discussion during a lecture.
  • Online exercises delivered through the Blackboard course space.
  • Responses to student emails and questions from a member of staff.
  • Generic feedback posted on Blackboard regarding examination performance
  • Written and/or verbal comments on the coursework.

Recommended reading

The recommended text for the course is:

Hull J. C. (2018), Options, Futures, and Other Derivatives.  9th Edition, Prentice-Hall. ISBN-10: 1-292-21289-6. ISBN-13: 978-1-292-21289-0; 

The website linked to the textbook is: http://www.rotman.utoronto.ca/~hull

Study hours

Scheduled activity hours
Assessment written exam 1.5
Lectures 20
Independent study hours
Independent study 128.5

Teaching staff

Staff member Role
Kevin Aretz Unit coordinator

Additional notes

Informal Contact Methods

  • Office hours
  • Online Learning Activities (blogs, discussions, self assessment questions)

 

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Lala Jafarli, Azerbaijan, MSc Finance student
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"Alliance MBS provides the opportunity to meet experts from your field of interest. You feel secure around the friendly environment and consistently feel the support of everybody. This year I lived everything to a maximum level; having fun with international friends and studying really hard. In a word, I would say that it was amazing!"

Lala Jafarli, Azerbaijan

MSc Finance, Class of 2015

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