Programme Content Part 2

Part 2 - Compulsory Modules

Credit Risk

Convenor: Dr Simone Varotto    Credits: 20

This course introduces students to a set of newly developed techniques to measure and manage credit risk in bank portfolios. In recent years financial institutions have been looking at ways to quantify risk in their corporate loan and mortgage books. The lack of market prices for these types of illiquid assets implies that standard risk assessment procedures can not be employed. The course focuses on default and recovery risk, credit ratings and credit scoring models, how to measure portfolio credit risk using contingent claim and credit rating based approaches, credit risk management tools and credit risk capital regulation (Basel II).

Outline content: Economic and Regulatory capital; Default probability; Credit scoring models; Credit ratings; Recovery risk; Credit Loss; Distribution: Expected and Unexpected Loss; A Rating-based Credit Risk Model: CreditMetrics; An Equity-based Credit Risk Model: KMV; Credit Risk Management Tools.

Financial Instruments

Convenor: Dr Leonardo Nogueira    Credits: 20

This course is aimed at the synthesis of the finance theory that they have learned in Part I of their MSc. Students will find that the Financial Instruments course will fuse together their knowledge of finance that is gained in Securities, Futures and Options, with their knowledge of markets obtains in the Financial Markets course and their understanding of Quantitative Methods for Finance.

Outline content: Swaps; Credit Derivatives; Caps, Floors and Swaptions; Convertible Bonds; Exotic Options.

Market Risk

Convenor: Dr Emese Lazar    Credits: 20

This module provides an understanding of the Value-at-Risk (VaR) framework for market risk assessment and control. The module has a significant practical component with computer-based workshops that are designed to support the lecture material.

Outline content: The characteristics of markets and market risk; Capital requirements & RAPM; Value at Risk models; Advanced VaR models; Applications to Equities; Applications to Foreign exchange; Applications to Interest rate products; Applications to Derivatives; Applications to Fund management, banking & non-financial firms.

Part 2 - Optional Modules

Choice of 40 credits from:

* Please note that at this time those modules with asterisks against them are not available on a distance learning basis.

Bond Market Pricing and Trading Strategies

Convenor: Dr Andy Bevan    Credits: 20

The main aims of the module are to identify the fundamental determinants of short- and long-term interest rates, learn how to monitor developments in interest rate markets and employ commonly used trading strategies. The course will be based around the work of a research department in an investment bank when formulating strategy for its proprietary trading desk and hedge fund customers. Each lecture will provide: (1) a concise outline of economic theory, (2) practical examples of events in markets from recent years, and (3) identification of trading strategies. Seminars will focus on market pricing conventions and worked examples.

Outline content: Flow of Funds and the Economics of Interest Rates; Monitoring Central Banks and the Determination of Short Rates; Pricing and Trading of Short Rate Instruments; Fundamentals of Bond Pricing, Duration and Convexity; Fitting the Yield Curve and Theories of the Term Structure; Trading of Bonds, Bond Forwards and Futures; Pricing and Trading of Interest Rate Swaps; Default Risk and Corporate Bond Spreads; Corporate Bond Spreads Through the Business Cycle; Pricing and Trading of Credit Default Swaps

Commodity Derivatives

Convenor: Dr Konstantina Kappou    Credits: 10

This module aims to provide students with a detailed knowledge of the Commodity Derivatives Markets. It examines the aspects of pricing and trading physical derivatives, with emphasis on the Energy and Shipping (Freight) sectors. The course is designed using real trading examples, stimulating students, who want to follow a Sales and Trading Career in Investment Banking, to approach derivatives pricing from first principles.

Outline content: Introduction to Commodity Markets (History and Evolution, Energy Products, Base Metals, Soft Commodities); Main Market Players and the Forward Curve (Basis Risk, Commodity Futures and Options, Exchanges and OTC markets); Pricing of Commodity Derivatives (Swaps, Options and Structured Trades); The Oil Market and its Mechanisms (OPEC and DOE, Crude Supply and Demand, Inventories, Crude Products and Crack Spreads, Refineries and Margins, Main Energy Derivatives strategies); The Freight Market and its Mechanisms (The Baltic Exchange and the Shipping Industry, Forward Freight Agreements, Trading Freight Derivatives).

Financial Regulation and Regulatory Policy

Convenor: Dr Mads Andenas    Credits: 10

Provides a basic understanding of the regulatory framework and to introduce the concepts of financial market regulation and analyse the manner in which financial firms operate. We will challenge current and past thinking on regulatory structures and concepts especially in the context of the recent financial crisis, which provides us with a rich source of information on the pros and cons of various options. One of the key aims to provide students with the skills and knowledge needed to gain an understanding of the reform processes and their consequences for markets around the world.

Outline content: Aims and Objectives of Financial Regulation; The Regulation of Financial Firms and Products; The Regulation of Financial Intermediaries.

Hedging (not available via distance learning)

Convenor: Dr Jacques Pezier    Credits: 20

This course is designed for students seeking a career in ‘front office’ risk management whether in banks, fund management or corporate treasury. Hedging is financial risk management in action; it is often cited as the raison d’etre of derivatives markets - trading and arbitrage playing the supporting roles of providing liquidity and keeping prices fair and thus facilitating hedging. Corporates can reduce uncertainty by hedging away financial risks that fall beyond their areas of competence; fund managers can design hedge strategies that provide risk/reward profiles tailored to their clients; but it is in banking, which core activity is financial risk management, that efficient hedging makes the difference between success and failure.

This course examines the rationale for hedging and the methods for doing it efficiently in a variety of circumstances. We review the wide range of market risks (currency, interest rate, equity and commodity) and credit risks for which there is a growing derivatives market. Particular attention is given to the thorny issue of optimal dynamic hedging with transaction costs.

A basic understanding of stochastic processes and risk analysis methods is indispensable to address these issues as well as a basic knowledge of financial instruments and trading mechanisms. Only students with good quantitative skills and a basic knowledge of derivative products should take this course

International Securities Markets

Convenor: John Evans     Credits: 10

International Securities Markets applies general valuation risk assessment methods to: fixed income securities, derivatives and markets. It describes the basic characteristics of each fixed-income security, cash and underlying, and develops practical strategies for finding its value and assessing its risk. It also considers how the markets for these securities are related and begins the task of showing how these relationships can be exploited for trading or investment. The analytical techniques introduced in this module are applied to allow the successful candidate to apply directly to industry the more theoretical market valuation and risk models learned in other core modules taken in the first term.

Outline Content: Fixed Income Analysis; Rates Trading and Hedging; Credit Analysis and Products.

Liquidity Risk (not available via distance learning)

Convenor: Dr Alfonso Dufour   Credits: 10

The evolution of algorithmic trading, the proliferation of alternative trading platforms for trading the same security and the development of new products and assets with limited liquidity have contributed to raising the awareness of academics and traders on the importance of understanding and properly managing liquidity and execution risks. The objective of this course is to give students an introduction to liquidity and execution risks and an overview of the methods for managing these risks. The issues discussed in this course are important when developing trading strategies, valuing portfolios, liquidating large positions and transitioning assets to new investments. 

Outline content: Introduction to the Security trading industry; MiFID and Reg-NMS; Traders and their motivation to trade; Order book trading: The LSE rule book; Transaction cost measurement; Execution Risk and Optimal Trading Strategies.

Managing Securities Operations (not available via distance learning)

Convenor: TBA    Credits: 10

Managing Securities Operations is learning about and applying the concept of Operations Management to a financial institution. The course combines teaching about both the technical aspects of securities operations management and theoretical aspects of managing the risks inherent in such as business. It also serves as a base for those interested in further study in operational risk management. The analytics techniques taught in this course serve to synthesise much of the material being taught in the first term core topics of products, markets and institutions by learning how to apply them with regard to management theory. 

Outline content: Essential operational management concepts; The operational structure of a securities trading organisation; The many types of securities transactions; Understanding the trade life cycle - post trade; Understanding the trade life cycles - funding; Operational risks and how to manage them.

Portfolio Management

Convenor: Dr Jacques Pezier    Credits: 20

The module builds on the techniques for portfolio selection that were introduced at Part One. It addresses both the theory and practice of portfolio management. The theoretical part will examine the issues involved in constructing an investment portfolio, evaluating it’s performance, adjusting its composition through time to ensure that its performance remains optimal, and it will consider the use of derivatives in managing risk. The practical part will provide students with handson experience of constructing and managing an equity portfolio. 

Outline content: Financial instruments and markets; Diversification; Passive asset allocation; Active portfolio management; Equity analysis; Bond analysis; Derivatives for fund management (forwards/futures/swaps/options); Hedging/ portfolio insurance; Investment strategies/ Performance measurement; Fund management in practice.

The Principles of Islamic Commercial Jurisprudence and the Nominate Contracts

Convenor: Professor Simon Archer    Credits: 10

Provides students with the opportunity to study the juristic basis of Islamic finance, and the nominate contracts that are set out in Islamic commercial jurisprudence (the Fiqh al Muamalat).

Outline content: the origins of Islamic commercial jurisprudence; prohibitions to be respected in order for Islamic contracts to be valid (Avoidance of riba (pure return on money), maysir (speculation), and gharar (uncertainty or ambiguity of subject matter)); the frequently used nominate contracts; overview of Islamic financial products and their basis in nominate contracts; Shari’ah governance of Islamic financial institutions; the IFSB Guidelines on Shari’ah governance.

Research Project

Convenor: Professor Charles Sutcliffe    Credits: 20

The aim of the research project is to allow students to define and execute a piece of research in finance on a topic of their choice, with direction from an academic supervisor and with assistance from a doctoral student support supervisor.

Volatility Analysis

Convenor: Professor Carol Alexander    Credits: 20

Provides an in depth understanding of the different approaches to modelling financial market volatility in discrete and continuous time. The module will focus on GARCH statistical models and the local and stochastic volatility models that are now in standard use by leading industry practitioners, and which have been the subject of extensive academic research. It is has a high quantitative content and a significant practical component with computer-based workshops (face-to-face and distance) designed to support the material.

Outline content: Statistical models of Volatility and Correlation; Normal mixture models; Normal and normal mixture GARCH; Principal Component Analysis: Applications to building covariance matrices; Modelling Implied Volatilities and their dynamics; Local Volatility models; Stochastic Volatility Models; Hedging.


 

NB. All our Masters degrees comprise a total of 180 credits: 80 credits at Part One and 100 credits at Part Two. Please note that module titles or content may vary each year.