# 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:

- [Accounting and Finance (with a professional placement year) BSc](https://www.sussex.ac.uk/study/undergraduate/courses/accounting-and-finance-with-a-professional-placement-year-bsc-hons)
- [Accounting and Finance BSc](https://www.sussex.ac.uk/study/undergraduate/courses/accounting-and-finance-bsc-hons)
- [Astrophysics MPhys](https://www.sussex.ac.uk/study/undergraduate/courses/astrophysics-mphys)
- [Banking and Digital Finance (with a professional placement year) BSc](https://www.sussex.ac.uk/study/undergraduate/courses/banking-and-digital-finance-with-a-professional-placement-year-bsc-hons)
- [Banking and Digital Finance BSc](https://www.sussex.ac.uk/study/undergraduate/courses/banking-and-digital-finance-bsc-hons)
- [Economics and Finance (with a professional placement year) BSc](https://www.sussex.ac.uk/study/undergraduate/courses/economics-and-finance-with-a-professional-placement-year-bsc-hons)
- [Economics and Finance BSc](https://www.sussex.ac.uk/study/undergraduate/courses/economics-and-finance-bsc-hons)
- [Finance and Business (with a professional placement year) BSc](https://www.sussex.ac.uk/study/undergraduate/courses/finance-and-business-with-a-professional-placement-year-bsc-hons)
- [Finance and Business BSc](https://www.sussex.ac.uk/study/undergraduate/courses/finance-and-business-bsc-hons)
- [Finance and Technology (FinTech) (with a professional placement year) BSc](https://www.sussex.ac.uk/study/undergraduate/courses/finance-and-technology-fintech-with-a-professional-placement-year-bsc-hons)
- [Finance and Technology (FinTech) BSc](https://www.sussex.ac.uk/study/undergraduate/courses/finance-and-technology-fintech-bsc-hons)
- [Mathematics with Finance BSc](https://www.sussex.ac.uk/study/undergraduate/courses/mathematics-with-finance-bsc-hons)
- [Mathematics with Finance MMath](https://www.sussex.ac.uk/study/undergraduate/courses/mathematics-with-finance-mmath)
- [Physics (Quantum Technology) (research placement) MPhys](https://www.sussex.ac.uk/study/undergraduate/courses/physics-quantum-technology-research-placement-mphys)
- [Physics (Quantum Technology) MPhys](https://www.sussex.ac.uk/study/undergraduate/courses/physics-quantum-technology-mphys)
- [Physics (research placement) MPhys](https://www.sussex.ac.uk/study/undergraduate/courses/physics-research-placement-mphys)
- [Physics (with an industrial placement year) BSc](https://www.sussex.ac.uk/study/undergraduate/courses/physics-with-an-industrial-placement-year-bsc-hons)
- [Physics (with an industrial placement year) MPhys](https://www.sussex.ac.uk/study/undergraduate/courses/physics-with-an-industrial-placement-year-mphys)
- [Physics BSc](https://www.sussex.ac.uk/study/undergraduate/courses/physics-bsc-hons)
- [Physics MPhys](https://www.sussex.ac.uk/study/undergraduate/courses/physics-mphys)
- [Physics with Astrophysics BSc](https://www.sussex.ac.uk/study/undergraduate/courses/physics-with-astrophysics-bsc-hons)
- [Physics with Astrophysics MPhys](https://www.sussex.ac.uk/study/undergraduate/courses/physics-with-astrophysics-mphys)
- [Physics with Data Science BSc](https://www.sussex.ac.uk/study/undergraduate/courses/physics-with-data-science-bsc-hons)
- [Physics with Data Science MPhys](https://www.sussex.ac.uk/study/undergraduate/courses/physics-with-data-science-mphys)
- [Theoretical Physics BSc](https://www.sussex.ac.uk/study/undergraduate/courses/theoretical-physics-bsc-hons)
- [Theoretical Physics MPhys](https://www.sussex.ac.uk/study/undergraduate/courses/theoretical-physics-mphys)