Options, Futures, and Valuations module (BU41027)

Learn how to price options, futures, and other basic financial derivatives.

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Module code


Options and futures are financial derivatives that give businesses the right (options) or obligation (future) to buy or sell assets at predetermined prices in the future.

Valuation refers to the process of assessing the worth of assets based on factors like market conditions, earnings, and potential for growth.

The module will broaden your knowledge and understanding of basic options, futures and some basic financial derivatives, and how that risk can be managed by financial derivatives.

You will learn about the concepts, mechanics, and practical applications of options and futures, including their valuation, risk mitigation, and trading strategies.

What you will learn

In this module, you will:

  • learn how to price in terms of financial derivative
  • develop critical reasoning skills in the context of financial derivatives and financial risk management
  • be equipped with the practical skills to apply the most appropriate financial derivatives to managing and hedging the financial markets volatility

By the end of the module, you will be able to:

  • explain the sources of financial markets risk
  • explain the key characteristics of various derivative products, pricing of basic options, pricing futures, forward contracts, and pricing of basic interest rates swaps
  • use derivative products as risk management tools and understand the implications of hedging via risk-neutral replication and construct hedge portfolios
  • understand pricing and hedging principles of a range of derivatives.

If time is allowed, you will also learn the concepts of basic real options.

Assignments / assessment

Class test 1 (50%)

  • in week 5
  • six hours of effort expected

Class test 2 (50%)

  • in week 10
  • six hours of effort expected

This module does not have a final exam.

Teaching methods / timetable

The module consists of approximately 20 hours of face-to-face lectures/tutorials in Semester 1.

Week Topic covered



No activities as the module starts from week 3

Introduction for Options

Options Pricing by Binomial Tree Model


Options Pricing by Binomial Tree Model (2)

Options Pricing by BSM Model


Options Pricing by BSM Model

Discussions of Options Risk Management


Reading Week

Test 1 Deadline

7 Futures: Introduction
8 Futures: Pricing
9 Futures: Pricing (2)
10 Futures and Risk Management
11 Test 2 Deadline




This module is available on following courses: