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This unit firstly provides an introduction to the major classes of derivatives: forwards, futures, swaps and options. It then examines how these instruments can be used by companies for the purposes of hedging, speculation and arbitrage. Each of these categories of derivatives is examined in detail and students are required to understand the rationale for each. Considerable attention is also given to various models used to price derivative products. The nature of contemporary risk management, as the context for derivatives, is also considered.