FNCE30007
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This subject focuses on the application and valuation of derivative securities, such as forwards, futures, swaps and options. The emphasis will be on arbitrage relations, valuation, and hedging with derivatives. The topics covered include; Forwards and futures: the mechanics of trading, price determination, hedging strategies; Swaps: definition and valuation; Options: payoffs, arbitrage bounds, trading strategies, the binomial model, the Black-Scholes model and its relationship to the binomial, hedging, American options and dividends, options on futures, limitations of the binomial and Black-Scholes Models. On successful completion of this subject students should be able to: High level of development: problem solving; statistical reasoning; application of theory to practice; synthesis of data and other information; evaluation of data and other information. Moderate level of development: written communication; interpretation and analysis; critical thinking; use of computer software. Some level of development: oral communication; collaborative learning; team work; accessing data and other information from a range of sources.
Tutorial participation
Mid-semester test 1hr
weeks 6–8
Final exam 3hr
took it Sem 1, 2024
Michelle's tutorials are worth going to every single week. She uses industry examples and the way she explains NPV made it finally click for me after two weeks of confusion in lectures.
took it Sem 2, 2024
The formula sheet they give you is useful but doesn't include every formula — especially for portfolio variance and CAPM variants. Memorise those. The exam has 5–6 multi-step calculations.
took it Sem 1, 2024
The DCF assignment is harder than it looks. Make sure your Excel formulas reference cells properly — hard-coded numbers will cost you marks. Michelle Li runs a tutorial on modelling best practice; go to it.
took it Sem 1, 2024
If you did not do maths methods or specialist in VCE, spend the first two weeks doing basic algebra and percentage problems. The subject assumes maths fluency that some commerce students do not have.
took it Sem 2, 2023
Takes more time than expected. About 12 hours a week for me — the problem sets are long and if you do not understand the theory you waste a lot of time. Get the fundamentals early.