FM322      Half Unit

This information is for the 2022/23 session.

Teacher responsible

Dr Rohit Rahi


This course is compulsory on the BSc in Finance and BSc in Financial Mathematics and Statistics. This course is available on the BSc in Accounting and Finance, BSc in Econometrics and Mathematical Economics, BSc in Economics, BSc in Mathematics and Economics, BSc in Mathematics, Statistics and Business and Diploma in Accounting and Finance. This course is available with permission as an outside option to students on other programmes where regulations permit and to General Course students.


Students must have completed Principles of Finance (FM212 or FM213). Mathematical Methods (MA100) is desirable but not required.

Course content

This course is intended for third-year undergraduates and builds upon FM212/FM213 Principles of Finance. This course focuses on derivatives, with a particular emphasis on equity derivatives (standard call and put options, exotic options), futures and forward contracts, and interest rate derivatives (swaps, caps and floors, swaptions). It systematically addresses three basic questions: how do these products work, i.e. what are their payoffs? How can they be used, for hedging purposes or as part of trading strategies? And above all: how are they priced? The course emphasises a small number of powerful ideas: absence of arbitrage, replication, and risk-neutral pricing. These are typically introduced in the context of discrete-time models, but the course also covers some well-known continuous-time models, starting with a comprehensive treatment of the Black-Scholes model. The level of mathematics is appropriate for third-year students with a solid quantitative background.


20 hours of lectures and 10 hours of classes in the LT.

Formative coursework

Students will be expected to produce written work for classes and to make positive contributions to class discussion.

Indicative reading

There is no required textbook, but the following is an excellent reference: J Hull, "Options, Futures, and Other Derivatives"


Exam (90%, duration: 2 hours) in the summer exam period.
Coursework (10%) in the LT.

Key facts

Department: Finance

Total students 2021/22: 47

Average class size 2021/22: 24

Capped 2021/22: No

Lecture capture used 2021/22: Yes (LT)

Value: Half Unit

Guidelines for interpreting course guide information

Course selection videos

Some departments have produced short videos to introduce their courses. Please refer to the course selection videos index page for further information.

Personal development skills

  • Problem solving
  • Application of information skills
  • Application of numeracy skills
  • Commercial awareness