Financial Derivatives (N1559)

Source: https://www.sussex.ac.uk/study/modules/undergraduate/2026/104397-financial-derivatives Parent: https://www.sussex.ac.uk/study/undergraduate/courses/banking-and-digital-finance-bsc-hons

15 credits, Level 6

Spring teaching

This module introduces the markets, trading and valuation of common derivative products, such as forwards/futures, swaps and options. Both equity and interest rate markets are covered.

Practical applications of derivatives for hedging or investment purposes are discussed, including their risk-return profiles, advantages and limitations. Fundamental concepts of no arbitrage and risk neutral pricing are introduced, culminating in the well known Black Scholes formula for option pricing at the end of the module.

Topics include:

introduction to derivative markets: forwards, futures, swaps and options: payoffs, market participants, benefits and dangers
equity and FX futures and forwards: markets, applications, margining and hedging
pricing of forwards and futures: no arbitrage, replication, basis risk
forward rates and forward rate agreements: term structure of interest rates
interest rate futures and swaps: day-count conventions, duration-based hedging
option markets and strategies: put-call parity, moneyness, European vs American options, price bounds, structuring, payoff decomposition
pricing options: the binomial tree model
exotic options: digital options, barrier options, Asian options
stochastic models for derivatives: geometric Brownian motions, Wiener processes
Black-Scholes Model: from binomial to Black Scholes, pricing formulae for European options, options on futures
Greeks: risk management with options, hedging.

Teaching

67%: Lecture\ 33%: Seminar\

Assessment

30%: Coursework (Test)\ 70%: Examination (Unseen examination)\

Contact hours and workload

This module is approximately 150 hours of work. This breaks down into about 30 hours of contact time and about 120 hours of independent study. The University may make minor variations to the contact hours for operational reasons, including timetabling requirements.

We regularly review our modules to incorporate student feedback, staff expertise, as well as the latest research and teaching methodology. We’re planning to run these modules in the academic year 2026/27. However, there may be changes to these modules in response to feedback, staff availability, student demand or updates to our curriculum.

We’ll make sure to let you know of any material changes to modules at the earliest opportunity.

Courses

This module is offered on the following courses: