AFIN3029

Derivative Instruments
Session 1, In person-scheduled-weekday, North Ryde 2024

Department of Applied Finance

Contents
Disclaimer
General Information 2 Macquarie University has taken all reasonable
measures to ensure the information in this
Learning Outcomes 2 publication is accurate and up-to-date. However,
the information may change or become out-dated
as a result of change in University policies,
General Assessment Information 2 procedures or rules. The University reserves the
right to make changes to any information in this
Assessment Tasks 3 publication without notice. Users of this
publication are advised to check the website
Delivery and Resources 4 version of this publication [or the relevant faculty
or department] before acting on any information in
Unit Schedule 5 this publication.

Policies and Procedures 5

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Unit guide AFIN3029 Derivative Instruments

General Information
Unit convenor and teaching staff
Shane Magee
[email protected]

Credit points
10

Prerequisites
20cp at 2000 level including ((AFIN252 or AFIN2050) and (AFIN270 or AFIN2070 or STAT272
or STAT2372))

Corequisites

Co-badged status

Unit description
This unit explores the characteristics and pricing of derivatives. The importance of the
principles of hedging and arbitrage in derivative pricing, is considered. Derivatives
investigated include forwards, futures, options and various structured products. In particular,
the unit covers non-standard securities and numerical methods.

Important Academic Dates

Information about important academic dates including deadlines for withdrawing from units are
available at https://www.mq.edu.au/study/calendar-of-dates

Learning Outcomes
On successful completion of this unit, you will be able to:

ULO1: Examine the concepts of option pricing theory and the role of derivatives.
ULO2: Apply financial derivatives such as forward/futures and options to solve
quantitative problems.
ULO3: Develop skills to price options and other derivatives.
ULO4: Examine the principles of hedging, arbitrage theory and structured products.

General Assessment Information

Late Assessment Submission Penalty (written assessments)

Unless a Special Consideration request has been submitted and approved, a 5% penalty (of the
total possible mark) will be applied each day a written assessment is not submitted, up until the
7th day (including weekends). After the 7th day, a grade of ‘0’ will be awarded even if the

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Unit guide AFIN3029 Derivative Instruments

assessment is submitted. Submission time for all written assessments is set at 11.55pm. A
1-hour grace period is provided to students who experience a technical concern.

For any late submissions of time-sensitive tasks, such as scheduled tests/exams, performance
assessments/presentations, and/or scheduled practical assessments/labs, students need to
submit an application for Special Consideration.

Assessment Tasks
Name Weighting Hurdle Due

Quizzes 20% No Week 7 and Week 12

Assignment 30% No Week 10

Final Examination 50% No University Examination Period

Quizzes
Assessment Type 1: Quiz/Test
Indicative Time on Task 2: 15 hours
Due: Week 7 and Week 12
Weighting: 20%

There are two online quizzes during the session, each worth 10%

On successful completion you will be able to:

• Examine the concepts of option pricing theory and the role of derivatives.
• Develop skills to price options and other derivatives.
• Examine the principles of hedging, arbitrage theory and structured products.

Assignment
Assessment Type 1: Quantitative analysis task
Indicative Time on Task 2: 20 hours
Due: Week 10
Weighting: 30%

The assignment will involve the analysis of a financial scenario or problem

On successful completion you will be able to:

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Unit guide AFIN3029 Derivative Instruments

• Examine the concepts of option pricing theory and the role of derivatives.
• Apply financial derivatives such as forward/futures and options to solve quantitative
problems.
• Develop skills to price options and other derivatives.
• Examine the principles of hedging, arbitrage theory and structured products.

Final Examination
Assessment Type 1: Examination
Indicative Time on Task 2: 25 hours
Due: University Examination Period
Weighting: 50%

A two hour final exam will be held during the University Examination Period.

On successful completion you will be able to:

• Examine the concepts of option pricing theory and the role of derivatives.
• Apply financial derivatives such as forward/futures and options to solve quantitative
problems.
• Develop skills to price options and other derivatives.
• Examine the principles of hedging, arbitrage theory and structured products.

1
If you need help with your assignment, please contact:

• the academic teaching staff in your unit for guidance in understanding or completing this
type of assessment
• the Writing Centre for academic skills support.
2
Indicative time-on-task is an estimate of the time required for completion of the assessment
task and is subject to individual variation

Delivery and Resources

Required Text

Hull, J., Treepongkaruna, S., Heaney, R., Pitt, D., and Colwell, D. (2014) Fundamentals of
Futures and Options Markets, 1st edition, Pearson

Learning and Teaching Activities

The content for each week will comprise a lecture and a set of tutorial questions.

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Unit guide AFIN3029 Derivative Instruments

Students will need to register for a tutorial. Tutorials are considered compulsory but no marks are
allocated. The tutorial schedule will be made available on iLearn. Tutorial enrolment or change of
tutorial can be made through eStudent in the first two weeks of the session. No tutorial changes
are allowed after Week 2. Students should attend their allocated tutorial, but exceptions may
occur on a one-off basis. That is, where circumstances prevent you from attending your own
tutorial in a given week, you may attend an alternative tutorial if room is available. Students are
expected to complete the ‘Tutorial Questions’ as a self-directed study activity before attending a
tutorial. Additional learning support will be available in tutor consultation times.

Unit Schedule
Week Topic

1 Introduction to derivatives and mechanics of futures markets

2 Hedging strategies using futures

3 Interest rates

4 Determination of forward and futures prices

5 Interest rate futures

6 Swaps

7 Mechanics of option markets and properties of option prices

8 Trading strategies involving options

9 Introduction to binomial trees

10 Valuing stock options: The Black-Scholes-Merton model

11 Options on stock indicies, currencies and futures

12 The Greek letters

13 Revision

Policies and Procedures

Macquarie University policies and procedures are accessible from Policy Central (https://policie
s.mq.edu.au). Students should be aware of the following policies in particular with regard to
Learning and Teaching:

• Academic Appeals Policy

• Academic Integrity Policy
• Academic Progression Policy
• Assessment Policy
• Fitness to Practice Procedure
• Assessment Procedure

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Unit guide AFIN3029 Derivative Instruments

• Complaints Resolution Procedure for Students and Members of the Public

• Special Consideration Policy

Students seeking more policy resources can visit Student Policies (https://students.mq.edu.au/su
pport/study/policies). It is your one-stop-shop for the key policies you need to know about
throughout your undergraduate student journey.

To find other policies relating to Teaching and Learning, visit Policy Central (https://policies.mq.e
du.au) and use the search tool.

Student Code of Conduct

Macquarie University students have a responsibility to be familiar with the Student Code of
Conduct: https://students.mq.edu.au/admin/other-resources/student-conduct

Results
Results published on platform other than eStudent, (eg. iLearn, Coursera etc.) or released
directly by your Unit Convenor, are not confirmed as they are subject to final approval by the
University. Once approved, final results will be sent to your student email address and will be
made available in eStudent. For more information visit ask.mq.edu.au or if you are a Global MBA
student contact [email protected]

Academic Integrity
At Macquarie, we believe academic integrity – honesty, respect, trust, responsibility, fairness and
courage – is at the core of learning, teaching and research. We recognise that meeting the
expectations required to complete your assessments can be challenging. So, we offer you a
range of resources and services to help you reach your potential, including free online writing an
d maths support, academic skills development and wellbeing consultations.

Student Support
Macquarie University provides a range of support services for students. For details, visit http://stu
dents.mq.edu.au/support/

The Writing Centre

The Writing Centre provides resources to develop your English language proficiency, academic
writing, and communication skills.

• Workshops
• Chat with a WriteWISE peer writing leader
• Access StudyWISE
• Upload an assignment to Studiosity
• Complete the Academic Integrity Module

The Library provides online and face to face support to help you find and use relevant
information resources.

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Unit guide AFIN3029 Derivative Instruments

• Subject and Research Guides

• Ask a Librarian

Student Services and Support

Macquarie University offers a range of Student Support Services including:

• IT Support
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• Mental health support
• Safety support to respond to bullying, harassment, sexual harassment and sexual
assault
• Social support including information about finances, tenancy and legal issues
• Student Advocacy provides independent advice on MQ policies, procedures, and
processes

Student Enquiries
Got a question? Ask us via AskMQ, or contact Service Connect.

IT Help
For help with University computer systems and technology, visit http://www.mq.edu.au/about_us/
offices_and_units/information_technology/help/.

When using the University's IT, you must adhere to the Acceptable Use of IT Resources Policy.
The policy applies to all who connect to the MQ network including students.

Unit information based on version 2024.02 of the Handbook

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