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25877 Financial Market Instruments

Warning: The information on this page is indicative. The subject outline for a particular session, location and mode of offering is the authoritative source of all information about the subject for that offering. Required texts, recommended texts and references in particular are likely to change. Students will be provided with a subject outline once they enrol in the subject.

Subject handbook information prior to 2020 is available in the Archives.

UTS: Science: Mathematical and Physical Sciences
Credit points: 8 cp

Subject level:


Result type: Grade and marks

There are course requisites for this subject. See access conditions.


Designed for specifically for quantitative finance students, this subject provides a rigorous introduction to the main instruments and markets that comprise the financial system and to pricing using no-arbitrage arguments. It discusses the valuation of various financial securities such as equities and foreign exchange, bills and bonds, forward rates and yield curve calculations, forward rate agreements (FRAs) and interest rate swaps, and interest rate hedging. It also covers option basics including definitions, strategies and valuation. The subject provides students with a number of practical exercises involving implementation of the pricing models and techniques covered.

Subject learning objectives (SLOs)

Upon successful completion of this subject students should be able to:

1. Understand the mechanics of the common financial market instruments and their applications in markets. In particular, students should have an in-depth knowledge of basic fixed income securities, forward and futures on equity, FX and interest rate, interest rate swaps and options
2. Apply the pricing formulae for these instruments under various scenarios
3. Compute the risks associated with these instruments and apply techniques to manage these risks
4. Construct various types yield curves from traded instruments
5. Understand option contracts and devise option trading strategies

Contribution to the development of graduate attributes

This subject develops the essential concepts related to the use and pricing of fundamental financial instruments at an advanced, quantitative level. The subject emphasizes the practical applications and the importance of the various traded securities within the financial markets. Many of the concepts covered in this subject are further developed in later subjects in the Master of Quantitative course.

This subject contributes to the development of the following graduate attributes:

  • Critical thinking, creativity and analytical skills
  • Business practice oriented skills

This subject also contributes specifically to develop the following Program Learning Objectives for the Master of Quantitative Finance:

  • 2.1: Apply innovative new financial models to address financial trading and risk management issues
  • 5.1: Master quantitative finance technical skills necessary for professional practice

Teaching and learning strategies

The subject is presented in seminar and practical workshop format. The theoretical concepts are presented in lectures and students are lead through practical application exercises.

This subject will use the ‘flipped education’ model where students will have access to online learning resources and will undertake preliminary learning tasks prior to coming to classes where they engage in further learning and practical workshops. Consistent with Learning Futures, the subjects will enable students to experience an effective integration of online and face-to-face on campus learning.

Content (topics)

  • Basics of equity markets.
  • Fixed-income securities and bond portfolio management with applications.
  • The measurement and hedging of interest rate risk.
  • Forwards and futures; Valuation of forward contracts, cost of carry.
  • FRAs and interest rate swaps. Swap rates; valuation of interest rate swaps
  • Yield curve analysis: swap curve construction, forward rate curves, multiple curve construction. Workshop applications.
  • The mechanics of options markets, option basics, put-call parity, option trading strategies. Introduction to option valuation. Implied volatility and volatility smiles.


Assessment task 1: Assignments (Individual)


This assessment task addresses subject learning objective(s):

1, 2, 3, 4 and 5

Weight: 50%

Assessment task 2: Final Exam (Individual)


This assessment task addresses subject learning objective(s):

1, 2, 3, 4 and 5

Weight: 50%

Minimum requirements

Students must achieve at least 50% of the subject’s total marks.


Neftci, S. Principles of Financial Engineering, Academic Press Advanced Finance, 3rd Edition

Kosowski, R. and Neftci, S., 2014, Principles of Financial Engineering, 3rd Edition, Elsevier
Tuckman, B. 2011, Fixed Income Securities: Tools for Today's Markets, 3rd Edition, Wiley.
Hull, J. 2014, Futures, Options and Other Derivatives, 9th Edition., Prentice Hall.
Martellini, L and Priaulet, P., 2003, Fixed-Income Securities: Valuation, Risk Management and Portfolio Strategies, Wiley
Lamberton, D. and Lapayere, B., 2007, Introduction to Stochastic Calculus Applied to Finance, 2nd Edition, Chapman and Hall)