Identify the benefits of using futures for hedging, speculating and arbitraging with real examples.


Financial Engineering and Risk Management

Individual Written Essay Report – 50%



  1. Futures:
  2. Identify the benefits of using futures for hedging, speculating and arbitraging with real examples.
  3. Explore the comparative analysis of futures and forwards with the reference to previous studies.
  4. SWAPS:
  5. Use real examples, e.g. business between IBM and MSFT, to explain how SWAPs enhance comparative advantages of business.
  6. Evaluate the credit risk embedded in SWAPs and identify what contracts can be used to reduce the risks.
  7. Options
  8. Collect the live data from options markets on stock options, e.g. Apple options chain via NASDAQ and Yahoo finance. Explore and explain how to create major trading strategies involving options, e.g. butterfly, bull spread, bear / bull spread etc.
  9. Compare the strategies across at least 5 stock options. Identify the similarities and differences. Link the trading strategies to company’s performance, financial environment, business cycles and economic policy.
  10. Securitization
  11. Appraise the contribution of financial innovations to credit crisis 2007-2008.
  12. Employ real business cases occurred 2007-2008 to address ‘What went wrong on derivatives market? Why? What lessons can be learned?


The objective of this essay is to reflect on what you have learned from financial innovation and engineering in terms of the innovations in financial markets, e.g. ABS, MBS, and major derived financial contracts, e.g. futures, options and swaps. Also identify how innovative contracts contribute to financial instability and crisis, and what lessons can be learned. Meanwhile it enables students to familiar with the Bloomberg trading platform and other popular financial databases, e.g. Yahoo finance. Use them to collect financial data and analyse data using appropriate methods to achieve valuable conclusions.




Relevant journal articles, newspapers and your textbook are supportive readings to the essay. Some of them are available on Emerald (see library page in OnlineCampus on how to access Emerald).

  1. The essay should have an introduction, main body and conclusion.
  2. The WORD LIMIT of the essay is 3000 words + 10% extra allowance and contents exceeding the word limits will NOT be marked.
  3. You should note your WORD COUNT at the beginning of the essay.
  4. Read the marking criteria of essay assessment and feedback strategies, and the module handbook before you start.


  1. There must be no evidence of plagiarism.


  1. Further guidance on the presentation and format of essays and referencing and plagiarism will be in project guidelines [including how the authenticity and originality of student work will be monitored].


  1. References should be indicated in the text, of the written report, using the Harvard (name and date) system, for example “Recent research (Fama and French 1998; Ritter 1984) suggests…” or, “Previously, Ibbotson and Jaffe (1974) have contended…”. A full bibliography, in alphabetical order, must be included at the end of the written report.


Reading List:

Hull J. C. (2016), Fundamentals of Futures and Options Markets. 9th ed. Pearson (earlier edition available).



Hull J. C. (2018), Option, Futures and other Derivatives, 10th ed. New York: Pearson Prentice-Hall.

Chartered Institute for Securities and Investment Institute (2011), Derivatives Unit 3 workbook, London. (CISI workbooks available in library)

Jacques, Ian, (2013), Mathematics for economics and business, 7th ed. Financial Times: Prentice Hall.

Frank K. Reili and Kei (2012), Analysis of investment & management of portfolios, 10th ed. South-Western.

Securities and financial derivatives: the official learning and reference (2007), 4th ed. London: Securities & Investment Institute.




Additional Instructions:

For any essay style answers and the written report they will be assessed on content, writing style and originality.

Concerning content, marks will be awarded for

  • clarity and flow of argument
  • knowledge of the extant literature and theory
  • evidence of understanding the question asked
  • use of examples and/or case studies


Regarding writing style, marks will be awarded for

  • use of English. Essays should be grammatically correct, with no spelling or typing errors (in the case of the written report)
  • neat presentation
  • structure, that is use of paragraphs, headings and sub-headings
  • bibliography (in the case of written report).


References should be indicated in the text of the essay style answers and the written report using the Harvard (name and date) system, for example “Recent research (Fama and French 1998; Ritter 1984) suggests…” or, “Previously, Ibbotson and Jaffe (1974) have contended…”.  A full bibliography, in alphabetical order, must be included in the written report.




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