Programme Content Part 2

Part 2 - Compulsory Modules

Current Topics in Investment Management

Convenor: John Evans    Credits: 10

Current Issues in Investment Management is an applied debate on the issues and trends affecting the investment management industry and as such the topics may vary and / or be updated on a year-to-year basis. The purpose is to give the student a clear overview on industry structure and the forces of change – something that has been identified as a key information need by investment management firms in regard to their future management hires. Although stand alone topics, they will be integrated by usage of an industry model for competition such as that advanced by Michael Porter to show the interaction between the various financial players, underlying trends in demographics and government regulation.

Outline content: 1) Overview of financial intermediation at both an institutional and retail level. Demographic trends and changes in public policy and regulation; 2) Analysis of pension fund sponsors and their managers. The role of investment consultants; 3) The role of investment management in the insurance industry, both life and casualty; 4) Use of behavioural finance in investment strategy; 5) Global Custody - operations management in funds; 6) International investing and currency overlay; 7) Investing in Real Estate; 8) Investing in Commodities; 9) Regulation of the IM industry - a European focus; 10) Alternative Investment Strategies; 11) Investment Management Game (seminar).

N.B.  Topic order may change given the schedule of the various guest speakers.

Enterprise Valuation

Convenor: Dr Carol Padgett    Credits: 10

Introduces techniques used to measure corporate performance and / or value companies. Examines the calculation and explanation of a variety of performance measures, the valuation of companies based on projective cash flows and how information asymmetrics affect valuation.

Outline content: Shareholder value; Economic profit; Free cash flow; Applications to IPOs and new corporate policies.

Ethics in Investment Management

Convenor: Carol Padgett    Credits: 10

Introduces ethical difficulties encountered by investment professionals as they invest other people’s money. By the end of the course students will appreciate the ethical standards imposed by professional bodies and financial regulators. They will be able to identify the ethical dimension involved in the decision-making process, and be able to discuss the conflicts between economic efficiency and ethical behaviour.

Outline content: Introduction to ethics; Ethics and the finance professional; Regulation and ethics in financial services; Market integrity; Fiduciary duties in portfolio management; Socially responsible investment; Personal and professional ethics; Scandals and regulation; Insider dealing; Fiduciary and other duties of care; Screening and portfolio management.

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.

Part 2 - Optional Modules

A 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).

Corporate Finance

Convenor: Dr Carol Padgett   Credits: 20

Introduces students to the main financial decisions taken by companies, and examining how those decisions influence the market’s valuation of companies. By the end of the module it is expected that students will be able to: undertake investment appraisals in the face of uncertainty; understand how new security issues are made, and analyse their consequences; analyse the effects of dividend policy and share repurchases on company value; understand how companies manage working capital and how companies manage risk. 

Outline content: Companies, objectives and information sources; Capital budgeting under certainty and uncertainty; Capital budgeting using real options; Capital structure: New issues and Debt and the weighted average cost of capital; Dividend policy; Information and signalling; Working capital management; Corporate risk management; Exit from the stock market.

Derivatives Securities: Pricing, Hedging and Trading

Convenor: Dr Michael Smith    Credits: 20

The module objective is to give students a practical working knowledge of the pricing, hedging and trading of derivative securities, in particular options, via the use of trading simulations and pricing case studies/software. The emphasis of the module is on practical application and it is expected that by the end of the module students will understand and be able to analyse the time/risk dynamics of derivatives in a trading environment.

Outline content: Review of Option Basics; Option Pricing; Option Price Sensitivities: Risks and Trading Applications; Volatility; Volatility Smiles; Trading Strategies; Currency Options.

Empirical Market Microstructure (only available via distance learning)

Convenor: Dr Alfonso Dufour    Credits:10

In the trading industry there is an increasing awareness of the importance of transaction costs and liquidity risk management. However, transaction costs and liquidity risk can be appropriately managed only if they can be measured. The objective of this course is to give students an introduction to state-of-the-art econometric techniques for analysing trade data, measuring transaction costs and market liquidity and evaluating market fragmentation.

Essentials of Financial Engineering

Convenor: Dr Marcel Prokopczuk    Credits: 10

The module provides an introduction to the basic techniques employed in Financial Engineering. Students will understand how these methods can be applied to design securities with desired payoff characteristics. They will be able to evaluate complex securities by means of reverse engineering and be aware of possible problems when these methods are applied in real world situations.

Outline content: Introduction to Financial Engineering, cash flow engineering, basic financial products, interest and forward rates, no-arbitrage and the law of one price; Pricing and hedging by replication, major interest rate (IR) swap structures, IR swaps, currency forwards and cross currencies FX-swaps, options; Structured products, introduction and evaluation; Dynamic strategies for hedging and principal protection; Credit markets: CDS engineering, credit indices and CDO’s.

Financial Econometrics

Convenor: Dr Alfonso Dufour    Credits: 20

Building on the material introduced in Quantitative Methods for Finance, this module examines a number of additional techniques that are relevant for financial applications, and in particular for modelling and forecasting financial time series. An introduction to the methods of maximum likelihood estimation and Generalised Method of Moments will be given, and emphasis will be placed on modelling high-frequency data. Case studies from the academic finance literature are employed to demonstrate potential uses of each approach. Extensive use is also made of financial econometrics software to demonstrate how the techniques are applied in practice.

Outline content: Stylised characteristics of financial data; Ordinary Least Squares (OLS); Relaxing the OLS assumptions; Simultaneous equations models; Vector autoregressive models; Cointegration; Maximum Likelihood estimation method; Panel data analysis; Simulations methods in econometrics and finance.

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.

Foreign Exchange and Money Markets

Convenor: Dr Michael Smith    Credits: 20

Equips students with a firm understanding of the structure and operation of the FX and short-term interest rate markets. This will not only provide the technical knowledge required to trade in or use those markets, but will also introduce and illustrate a number of key financial concepts such as balance sheet constraints, liquidity, funding issues, no-arbitrage pricing and arbitrage. The module has a strong practical flavour.

Outline content: 1) The functions of the money market. The role of the central bank. 2) Traditional cash instruments: deposits, Treasury bills, CP, CD, repo. Key rates: LIBOR/EURIBOR, EONIA/etc. 3) Interest rate risk in the money market. Cash rates, forward rates and the forward curve. 4)  Money market derivatives: FRA. The mechanics of FRAs: early payment and discounting of the settlement amount. 5) Money market derivatives: money market futures. Market structure and contract specification. Using futures to take outright and spread risk. Using futures to hedge: the problem of basis risk. 6) Money market derivatives: interest rate swaps. Mechanics. OIS. 7) Exchange rate conventions. The FX market. Forward FX: pricing, hedging. FX swaps.

Hedging

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

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

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.

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.

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.

Real Estate Finance

Convenor: Professor Charles Ward    Credits: 10

Aims to apply some key corporate finance issues using real estate as the core example. Examines what makes real estate different, why companies are selling it and how it is affected by mergers and take-overs. Real estate is one of the most important assets held by companies, it is used as security for more debt than any other asset, widely used in leasing transactions yet hardly figures in any corporate finance textbook.

Outline content: The reporting of real estate in company accounts; Performance of real estate companies assessed through accounting numbers and ratios; Comparison of valuation methods used in finance and in property; Traditional methods of property appraisal and development; Review of Capital Budgeting techniques applicable to real estate investment and development applications; Principles underlying decisions about capital structure, debt and equity financing, Project vs. company funding, application to real estate lease or buy decision (financial and accounting issues); Real estate financial decisions with applications of real options.

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.

Stock Index Futures

Convenor: Professor Charles Sutcliffe    Credits: 10

This module covers the construction of stock market indices, how futures are traded, pricing futures from an arbitrage relationship, how futures can be used for hedging the price risk of the underlying, and the various uses that fund managers make of these derivative instruments. 

Outline content: Introduction to Trading Stock Index Futures; Arbitrage and the Valuation of Stock Index Futures; The Basis and Spread Trading of Stock Index Futures; Hedging Using Stock Index Futures; The Uses of Stock Index Futures by Fund Managers.

Topics in Financial Engineering

Convenor: Dr Jacques Pezier    Credits: 10

Designed for future quants and financial engineers to introduce them to the main types of problems they will be asked to solve and to make them aware of the range of issues they will have to consider. Financial engineering is the art of designing and implementing innovative solutions to financial problems. This course explores a number of typical problems faced by both financial and non-financial institutions for which a range of solutions, often using derivative products, is possible. In each case we examine the feasibility and relative advantages and disadvantages of alternative solutions, taking into account legal, accounting, tax and regulatory matters as well as risks and returns. 

Outline content: Facilitation of acquisition and disposal of shares, preparation for mergers - Equity swaps, CVRs and quantity options; Tax efficient structures and strategies - Long term investment products, tax efficient financing, executive incentive schemes; Creation of cheap Tier 1 and upper Tier 2 capital for banks - Convertibles and other hybrids; Market risk management - Index linked structured products, overlay strategies, dynamic control strategies; Credit risk management - credit risk protected loans, CDSs and securitization.

Topics in the History of Finance

Convenor: Professor Adrian Bell    Credits: 10

This module aims to provide students with an understanding of the origins of Financial Markets, and with a broader appreciation of the early development of products and innovations in Finance – which many assume are recent twentieth century inventions.

Outline content: The module will focus on topics that can throw light on the development of financial markets over time. It is not restricted by date, but will draw mainly upon Medieval Europe for its focus. Topics will include: Forward Contracts for the supply of Wool in the 13th Century; Early Italian Merchant Banks - Riccardi, Bardi; The English Company of 1339; The South Sea Bubble - John Law; War Finance; Tulip Mania.

Trading and Exchanges (only available via distance learning)

Convenor: Dr Alfonso Dufour    Credits: 20

Provides students with an overview of exchanges and trading mechanisms and an introduction to modelling market player behaviour and trade price dynamics. This course helps the student understand how security markets work and how they are regulated. The focus is on the understanding of market performance key factors such as efficiency, transparency and liquidity. Students are provided with a framework for comparing and contrasting existing market structures; then students learn how market makers set spreads and quotes.

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.