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Unit Guide 

BFC3340 Derivatives 2 Semester 2, 2019 

We acknowledge and pay respects to the Traditional Owners and Elders -past, present and emerging - of the lands and waters on whichMonash Universityoperates.   Handbook link: http://monash.edu.au/pubs/2019handbooks/units/BFC3340.html The information contained in this unit guide is correct at time of publication. The University has the right to change any of the elements contained in this document at any time.

Last updated:18 Jul 2019

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Table of contents Unit handbook information

4

Synopsis

4

Mode of delivery

4

Workload requirements

4

Unit relationships

4

Prerequisites

4

Prohibitions

4

Co-requisites

4

Chief Examiner

4

Unit Coordinator(s)

4

Tutor(s)

5

Academic overview

5

Course outcomes

5

Unit learning outcomes

6

Teaching approach

6

Recording of lectures

6

Live streaming

6

Unit schedule Assessment summary

7 7

Second marking

8

Return of final marks

8

Exam viewing

8

Assessment criteria

8

Assessment requirements

8

Hurdle requirement

8

Assessment tasks

9

Examination

10

Referencing requirements

11

Feedback

11

Learning resources

11

Required resources

11

Technological requirements

12

Q Manual

12

Prescribed text and readings

12

Recommended resources

12

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Other information

12

Policies

12

Student Academic Integrity Policy

13

Special Consideration

13

Graduate Attributes Policy

13

Student Charter

13

Student Services

13

Monash University Library

13

Disability Support Services

13

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Unit handbook information Synopsis This unit provides a more technical treatment of derivative analysis with focus on implementation issues. Topics include stochastic calculus concepts that underpin continuous time option pricing models, alternatives to the Black-Scholes-Merton model, numerical approaches to option pricing, valuation of interest rate derivatives, exotic options, credit derivatives, Value-at-Risk and estimation of volatilities.

Mode of delivery Clayton (On-campus)

Workload requirements Minimum total expected workload to achieve the learning outcomes for this unit is 144 hours per semester typically comprising a mixture of scheduled learning activities and independent study. Independent study may include associated readings, assessment and preparation for scheduled activities. The unit requires on average three/four hours of scheduled activities per week. Scheduled activities may include a combination of teacher directed learning, peer directed learning and online engagement.

Unit relationships 

Prerequisites BFC2751 or equivalent.

Prohibitions BFF3751

Co-requisites None

Chief Examiner Name:DrBinhDo Campus:Caulfield Phone:0431 486 594 Email:[email protected]

Unit Coordinator(s) 4

Name:DrBinhDo Campus:Caulfield Email:[email protected] Phone:0431 486 594 Contact hours:2:45-3:45pm Monday at W1020 (Menzies)

Tutor(s) Name:DrNhungLe Campus:Clayton Phone: Email:[email protected]  Name:MrMichaelCiaravolo Campus:Clayton Phone: Email:[email protected] 

Academic overview Course outcomes Courseoutcomes associated with this unit are that graduates will: 1. be critical and creative scholars who produce: - innovative solutions to problems - apply research skills to business challenges - communicate effectively and perceptively 2. be responsible and effective global citizens who: - engage in an internationalised world - exhibit cross-cultural competence - demonstrate ethical values 3. demonstrate broad knowledge and technical skills in the area of their specialisation and be able to provide discipline based solutions relevant to the business, professional and public policy communities that we serve 4. be able to analyse and interpret financial data, demonstrate the use of fundamental financial models and empirical techniques and formulate and present investment and financing decisions and justifications thereof, to comply with the Australian Business Dean's Council endorsed Finance Learning Standards of knowledge, application, judgment, communication and teamwork and reflection 5. construct conceptual frameworks and use these to analyse complex issues in the corporate sector, government and the professions.

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Unit learning outcomes The learning goals associated with this unit are to: 1. develop an understanding of Wiener processes and Ito's Lemma as the basic building blocks for continuous time option pricing models. Derive the Black-Scholes-Merton differential equations 2. apply models of option pricing beyond the Black-Scholes-Merton model 3. apply numerical procedures to price options especially exotic options 4. analyse interest rate derivatives and apply term structure models 5. implement pricing models using technical programing languages. 6. demonstrate how risk can be quantified using different approaches 7. analyse and value swaps, credit default swaps and other derivatives and demonstrate how they can be used for risk management and speculation 8. apply critical thinking, problem solving and presentation skills to individual and/or group activities dealing with derivative instruments and demonstrate in an individual summative assessment task the acquisition of a comprehensive understanding of the topics covered by BFC3340.

Teaching approach This unit will be taught as a 2-hour lecture plus 1-hour tutorial each week for 12 weeks. Although lectures are recorded, you are expected to attend all lectures as additional materials and demonstration may be discussed during lectures. In addition, a weekly quizwill be held during the lecture which forms part of formal assessment. You are also required to attend and actively participate in all tutorials and the participation is also part of formal assessment. 

Recording of lectures This unit will have lectures (or seminars in the absence of lectures) recorded. These recordings will be available to current students. If there is more than one seminar or lecture stream, the Chief Examiner may decide not to record each stream. In the event that there is an equipment failure and the lecture is not recorded in part or in full, no alternative recording will be provided. The Chief Examiner may determine a part or parts of lectures (or seminars) unsuitable for recording.

Live streaming If you are allocated to a lecture activity as a livestream unit you do not need to come to campus. A link to the livestreams will be available in your Moodle unit. For information on how to participate in your lectures via live streaming you can review this guide created by the library:https://guides.lib.monash.edu/learning-tools/video If you have any technical issues please contact the service desk:https://www.monash.edu /esolutions/contact If you need more information on timetabling you can visit their site:https://www.monash.edu /timetables/fix-problems

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Unit schedule For units with on-campus classes, teaching activities are normally scheduled to start on the hour (teaching will commence on the hour and conclude 10 minutes prior to the scheduled end time). Students should note that the program outlined below is a guide to the material to be covered in this unit and not a definitive statement of when that material will be covered. Specific details relating to the timing will be discussed in class.

Week beginning

Lecture

Tute

29 Jul

Introduction; Trading derivatives on Stock Trak

Stock Trak trading

5 Aug

Swaps

Stock Trak trading

12 Aug

Wiener processes and Ito’s Lemma

Swaps

19 Aug

The Black-Scholes-Merton model revisited

Wiener processes and Ito’s Lemma

26 Aug

Futures options

The Black-Scholes-Merton model revisited

2 Sep

Exotic options

Futures options

9 Sep

MATLAB and numerical methods in option pricing

Exotic options

16 Sep

Interest rate options

MATLAB and numerical methods in option pricing

23 Sep

Value at Risk

Interest rate options

30 Sep

MID SEMESTER BREAK

7 Oct

Credit risk

Value at Risk

14 Oct

Credit derivatives 1

Credit risk

21 Oct

Credit derivatives 2 - Exam matters

Credit derivatives

Assessment summary Within semester assessment: 40% + Examination: 60% Assessment task

Value

Due date

Weekly online quizzes

10%

1 hr before lecture

Tutorial participation

10%

Weekly

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Assessment task

Value

Due date

Individual assignment

10%

End of week 11

Trading game

10%

End of week 10

Examination

60%

To be advised

A student’s final mark is normally the sum of the marks obtained in all of the individual assessment items in the unit.

Second marking In the Faculty of Business and Economics, all of the following assessment items graded as a fail by the first marker are blind marked by a second marker: ● ●

examination papers in-semester assessment items worth 20% or more

Return of final marks Faculty policy states that 'the final mark that a student receives for a unit will be determined by the Board of Examiners taking into account all aspects of assessment'. The final mark for this unit will be released by the Board of Examiners on the date nominated in the Faculty Calendar. Student results will be accessible through the my.monash portal.

Exam viewing Feedback on student performance in examinations and other end-of-semester assessment is required. The feedback should be in accordance with the University's procedures on Unit Assessment. Details of the examination script viewing arrangements set down by the Faculty of Business and Economics are available athttps://www.monash.edu/business/current-students /forms-and-guidelines/policies-and-procedures/examination-feedback-procedure

Assessment criteria Assessment Criteria Grading Descriptors available at: https://www.monash.edu/__data/assets/pdf_file/0006/801690/Assessment-in-Coursework-UnitsGrading-and-Marking-Procedures.pdf

Assessment requirements Hurdle requirement There is a hurdle requirement in this unit.The hurdle requirement isthat students must attain a mark of at least50% in the Final Exam / Final Major Assessment Task. A student's final mark is normally the sum of the marks obtained in all of the assessment tasks in the unit.Where a student

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does not meet the hurdle requirement, the maximum mark that may be returned for the unit is 48.

Assessment tasks Assessment task title:Weekly online quizzes Due Date: Date:1 hour before lecture Weighting/Value: 10% Details of Task: Task:Each of the 10 weekly quizzes consists of four multiple choice questions, and is worth 1 mark. These questions may be conceptual or computational and are to be completed at least 1 hour before the lecture. Answering these questionsrequires students to have completed prescribed reading and studied the notes for the relevant lecture. Release date: date:Immediately after the quiz is closed Word limit: limit:NA Presentation requirements: requirements:NA Estimated return date: date:Immediate Criteria for marking: marking:NA Learning objectives assessed: assessed:All Submission details: details:NA Penalties for late lodgement: lodgement:Students who fail to participate in a given quiz will forfeit the assessment piece. Assessment coversheet: coversheet:NA Additional information: information:NA

Assessment task title:Tutorial participation Due Date: Date:Weekly Weighting/Value: Weighting/Value:10% Details of Task: Tutorial participation is a vital part of learning in this unit. Students are required to attend and actively participate in tutorials. Each week, the tutor will randomly select students to discuss problems and show their work. Release date: NA Word limit:NA Presentation requirements: NA Estimated return date: Final mark will be made available following week 12. Criteria for marking: Generally, the mark awarded will be proportional to the number of tutorials in which the student actively participated as well as the quality of the participation. Learning objectives assessed: This activity is designed to test all learning objectives stated above. Submission details: NA Penalties for late lodgement: NA Assessment coversheet: NA Additional information: NA

Assessment task title:Individual assignment Due Date: Date:End of week 11 Weighting/Value: Weighting/Value:10% Details of Task: It involves a set of “short-answer” questions which may require computation,

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analyticalderivation, programming and/or analysis of derivative products. The questions will be handed out in the lecture. Release date: During Week 5 - 6 Word limit:NA Presentation requirements: To be advised in the assignment document Estimated return date: End of week 12 Criteria for marking: To be detailed in the assignment document. Learning objectives assessed: This activity is designed to test all of the learning objectives stated above. Submission details: To be advised in the assignment document. Penalties for late lodgement: Marks will be deducted for late submission, with details to be given in the assignment document. Assessment coversheet: Work submitted for assessment must be accompanied by a completed and signed assignmentcoversheet, available at www.buseco. monash.edu.au/student/forms /assignment- cover- sheet-fbe.doc Additional information: NA

Assessment task title:Trading game Due Date: Date:End of week 10 Weighting/Value: Weighting/Value:10% Details of Task: This assessment requires you to trade spot and derivatives for profits using StockTrak, a virtual trading platform that allows simulated trading with real-time market data. The aim is to provide exposure to close to real world trading experience while testing your understanding of various derivative instruments. Release date: Week 2 Word limit:NA Presentation requirements: NA Estimated return date: End of week 12 Criteria for marking: Marking will be based on the final ranking of the student's portfolio, its diversification as well as the quality of trade notes. Further details will be given in the assignment document Learning objectives assessed: Objectives 6 and 8 Submission details: Instruction is to be provided in the assignment document. Penalties for late lodgement: Instruction is to be provided in the assignment document. Assessment coversheet: NA Additional information: NA

Examination This unit may employ electronic assessment for the final exam. Further det details ails will be provided to you by Week 4 of Semester. Weighting: Weighting:60% Length: 2 hours and 10 minutes Type (open/closed book): Closed book Exam details: Further information will be provided during the week 12 lecture. Electronic devices allowed in the exam: Calculators are permitted in the exam. The only Faculty approved calculators permitted in tests and examinations for all Australian campuses and locations is the HP10bII+ or Casio FX82 (any

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suffix). Students are required to purchase their own calculator and are responsible for ensuring the calculator is in good working order and to have a set of spare batteries.

Referencing requirements To build your skills in citing and referencing, and using different referencing styles, see the online tutorial Academic Integrity: Demystifying Citing and Referencing athttp://www.lib.monash.edu /tutorials/citing/

Feedback Our feedback to you Types of feedback you can expect to receive in this unit are: ● ● ● ●

Formal individual feedback on assignments expressed as a letter grade Answers toquestions relating to the discipline or the unit’s work Advice about seeking additional help to develop your writing or research skills Informal feedback relating to class activities

Your feedback to us One of the formal ways students have to provide feedback on teaching and their learning experience is through the Student Evaluation of Teaching and Units (SETU) survey. The feedback is anonymous and provides the Faculty with evidence of aspects that students are satisfied with and areas for improvement. Previous student evaluations of this unit In response to previous SETU results of this unit, the following changes have been made: In response to last year student feedback, the CE has decided to remove the MATLAB component from the program to make the course more accessible for students without prior programming experience. If you wish to view how previous students rated this unit, please go to: https://www.monash.edu/ups/setu/about/setu-results/unit-evaluation-reports

Learning resources Monash Library Unit Reading List (if applicable to the unit):http://monash.rl.talis.com/index.html Research and Learning Online:www.monash.edu/rlo

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Required resources Students generally must be able to complete the requirements of their course without the imposition of fees that are additional to the student contribution amount or tuition fees. However, students may be charged certain incidental fees or be expected to make certain purchases to support their study. For more information about this, refer to the Higher Education Administrative Information for Providers, Chapter 18, Incidental Fees athttp://education.gov.au/help-resourcesproviders NA

Technological requirements Virtual learning environment (VLE): Moodle Material used in class together with other information of importance to you will be published online viathe unit’s Moodle site. In order to access information about this unit in Moodle you must be enrolled inthe unit and have a valid student account with authcate username and password. Moodle can be accessed through my.monash portal byclickingon the Moodle link under “Online systems”. If you need some helpwith Moodle then check out the Moodle Support for Students page.

Q Manual Work submitted for assessment must be consistent with the guidelines set down in the Q Manual, which is the faculty's student guide for producing quality work on time. Copies of this manual can be purchased at the bookshop or accessed online athttps://www.monash.edu/business/currentstudents/study-resources/qmanual .pdf

Prescribed text and readings Hull (2018) Options, Futures and Oth...