FINS3635 - Options, Futures and Risk Management (UNSW Sydney)

Course Description:

In today’s fast-paced financial markets, derivatives such as options and futures are integral to risk management, portfolio optimization, and price discovery. This course provides hands-on experience with the tools and techniques used to manage asset risk, focusing on the strategic use of derivatives in various market conditions. You will explore fundamental concepts like forward and futures contracts, options on stocks, indices, and futures, and how they can be used to hedge positions and manage uncertainty in financial markets.

Throughout the course, you will gain an intermediate understanding of key pricing models, such as binomial option pricing and risk-neutral valuation, and learn how stochastic processes drive stock price movements. By working with real-world cases, you will become familiar with the numerical methods used for option pricing, including techniques for valuing options on non-traded assets. The course also delves into more complex topics such as exotic options and the biases that can affect pricing models in practice.

Course Aims:

This course provides the basis to analyse and solve a variety of problems related to derivative securities. The lecture notes will be available before class, so that students can have an overview of the topics in advance. During the lecture, we discuss the details of the lecture notes, and answer various questions that are left unanswered in the notes. We discuss the intuition behind results and regularly refer to the “big picture” issues, of how each topic relates to other topics. Questions and discussion in class are welcome. Practice problems will be made available as the course progresses, and doing these should help students prepare for the exams as well as the assignment. The assessments will be based on the lecture notes and practice problems.

Relationship to Other Courses:

Provide a rigorous understanding of main types of exchange-traded options and futures contracts. Develop a working knowledge on the use of options and futures in risk management. Provide the necessary skills to value options and futures. There is some overlap with materials discussed in FINS2624, though the course, we will explore these topics in much greater depth. Students interested in Interest Rate Derivatives or Applied Portfolio Management will benefit from concepts explained in FINS3635. Students also need to be able to use a word processing package (such as WORD) and a spreadsheet (such as EXCEL). Some quantitative skills such as basic mathematical ability in dealing with algebraic manipulation is expected.