Year of Study:	3 – 4
Credit Units:	3
Duration:	45hours
Prerequisites:	AMS2020 Financial Mathematics; or with the Module Coordinator’s permission and upon endorsement of the relevant Head

This module aims to introduce the features, uses, pricing and hedging of financial derivatives in discrete-time models. Topics include call and put options, European- and American-style derivatives, forwards, no-arbitrage pricing theory, binomial tree model and its relationship with the Black-Scholes formula, risk neutral probability, and Greeks.

Upon completion of this module, students should be able to:

1. analyse the payoff and characteristics of the derivatives introduced;


2. apply the no arbitrage assumption, risk neutral probability, and concept of replicating portfolio in pricing and hedging;


3. calculate and analyse the price of various derivatives; and


4. explain the nature of Greeks and apply the techniques of hedging.