FNCE30007 Derivative Securities
The Complete Exam Bible · SM2 2026FNCE30007 Overview
- Faculty of Business and Economics
- Semester 2, 2026
- an undergraduate level 3 subject
- 12.5 points
FNCE30007 covers futures mechanics, hedging, forward pricing, option properties, binomial and Black-Scholes valuation, dividends, delta hedging, options on futures and swaps. It is taught within Faculty of Business and Economics. It is an undergraduate level 3 subject. It carries 12.5 points.
- Contract before formula Underlying, position, maturity, contract size and settlement determine the cash flow being valued.
- No-arbitrage is a construction A pricing identity follows from executable cash-and-carry or replication under stated assumptions.
- Payoff is not profit Premium, financing and transaction costs must be added after terminal intrinsic value.
- A hedge has a residual Basis, model, liquidity and rebalancing risk remain even when the initial ratio is correct.
How FNCE30007 is assessed
| Component | Weight | Format |
|---|---|---|
| Tutorial Participation | 10% | Eight marked tutorials across the current schedule |
| Mid-semester Test | 25% | One-hour individual test in Week 6 commencing 31 August 2026 |
| Final Examination | 65% | Three-hour individual exam during the official examination period |
Semester 2 has tutorial participation worth 10%, a one-hour Week 6 mid-semester test worth 25% covering Lectures and Tutorials 1-4, and a three-hour final examination worth 65% covering the full term. The current subject guide explicitly states that the final examination has no hurdle requirement.
Current FNCE30007 dates
| Date | Item | Control |
|---|---|---|
| 31 August 2026 | Week 6 Mid-semester Test | 25%, one hour, covering Lectures and Tutorials 1-4. |
| Weeks 4-5 and 7-12 | Marked tutorial participation | Eight tutorials contribute 10% in total. |
| Official examination period | Final Examination | 65%, three hours, full-semester coverage and no component hurdle. |
Dates are as published in the current course materials. Confirm exact deadlines and submission settings in the live LMS.
What FNCE30007 covers
Read Futures Contracts, Margin and Payoffs as the foundation, Options on Futures as the main change in method, and Swaps and Integrated Derivative Risk as the final application of the course.
Futures Contracts, Margin and Payoffs
futures contract · marking to market · margin call · trace a futures position through daily settlement and close-outDefine futures contract
The course material gives this chapter a concrete anchor: Lecture 1 and Tutorial 1 define long and short futures, contract specification, clearing, margin and close-out.
- futures contract
- marking to market
- margin call
- Applying futures contract
- Limits of marking to market and margin call
Hedging with Futures and Basis Risk
short hedge · basis · minimum-variance hedge ratio · choose direction and number of futures contracts for a commodity or portfolio exposureDefine short hedge
The course material gives this chapter a concrete anchor: Lecture 2 covers short and long hedges, basis risk, cross hedging, stock-index futures and hedge ratios.
- short hedge
- basis
- minimum-variance hedge ratio
- Applying short hedge
- Limits of basis and minimum-variance hedge ratio
Forward and Futures Pricing
cost of carry · cash-and-carry arbitrage · continuous compounding · derive forward or futures price from spot, rates and incomeDefine cost of carry
The course material gives this chapter a concrete anchor: Lecture 3 derives forward and futures prices for assets with no income, known income and known yield.
- cost of carry
- cash-and-carry arbitrage
- continuous compounding
- Applying cost of carry
- Limits of cash-and-carry arbitrage and continuous compounding
Option Properties, Payoffs and Bounds
call option · put-call parity · intrinsic value · draw option payoff and use parity or bounds to test a quoted priceDefine call option
The course material gives this chapter a concrete anchor: Lecture 4 covers option types, positions, payoffs, moneyness, value drivers and European versus American exercise.
- call option
- put-call parity
- intrinsic value
- Applying call option
- Limits of put-call parity and intrinsic value
One-Period and Multi-Period Binomial Valuation
binomial tree · risk-neutral probability · backward induction · build terminal payoffs and discount risk-neutral expected values through a treeDefine binomial tree
The course material gives this chapter a concrete anchor: The current schedule assigns Binomial I and II in Weeks 5 and 7, with the corresponding landed lecture-note artifacts.
- binomial tree
- risk-neutral probability
- backward induction
- Applying binomial tree
- Limits of risk-neutral probability and backward induction
Options on Futures
futures option · exercise settlement · futures put-call parity · distinguish futures-option payoff from a spot option and apply the matching pricing relationDefine futures option
The course material gives this chapter a concrete anchor: Week 7 combines Binomial II with options on futures in the current schedule.
- futures option
- exercise settlement
- futures put-call parity
- Applying futures option
- Limits of exercise settlement and futures put-call parity
Black-Scholes-Merton Valuation
Black-Scholes-Merton model · implied volatility · d-one · calculate a European option value and interpret volatility sensitivityDefine Black-Scholes-Merton model
The course material gives this chapter a concrete anchor: Week 8 assigns BSM, and the landed N(d2) explanation supports interpretation of the model's probability term.
- Black-Scholes-Merton model
- implied volatility
- d-one
- Applying Black-Scholes-Merton model
- Limits of implied volatility and d-one
Dividends and Early-Exercise Effects
discrete dividend · early exercise · dividend adjustment · adjust option valuation and exercise reasoning for distributionsDefine discrete dividend
The course material gives this chapter a concrete anchor: Week 9 covers dividends together with European, American and option-pricing extensions.
- discrete dividend
- early exercise
- dividend adjustment
- Applying discrete dividend
- Limits of early exercise and dividend adjustment
Delta Hedging and Greeks
delta · gamma · dynamic hedging · calculate a delta hedge and explain why it must be monitoredDefine delta
The course material gives this chapter a concrete anchor: Week 10 directly assigns delta hedging in the current S2 schedule.
- delta
- gamma
- dynamic hedging
- Applying delta
- Limits of gamma and dynamic hedging
Swaps and Integrated Derivative Risk
swap · fixed-rate leg · floating-rate leg · value a swap as received cash flows less paid cash flows and connect it to risk managementDefine swap
The course material gives this chapter a concrete anchor: The current schedule closes examinable technical content with swaps in Week 11 after delta hedging.
- swap
- fixed-rate leg
- floating-rate leg
- Applying swap
- Limits of fixed-rate leg and floating-rate leg
It is positioned as an advanced finance subject in derivative instruments and risk management.
A 65% comprehensive final rewards contract-accurate derivation and boundary checks, while tutorial participation and the Week 6 test require continuous problem solving from the opening futures sequence.
Assessment in fnce30007 is distributed as follows: 10% tutorial participation, a 25% one-hour mid-semester test and a 65% three-hour final examination
The operational assessment conditions matter here.
The Week 6 test covers Lectures and Tutorials 1-4; the three-hour final covers all lectures and tutorials.
What makes fnce30007 demanding is concrete: keeping position direction, contract units, compounding and replication aligned while recognising when basis risk, early exercise, dividends or model inputs break a memorised pricing relation
The current S2 guide explicitly states that the final examination has no hurdle requirement; the overall subject pass standard still applies.
For enrolment planning, Confirm the current Handbook eligibility and prerequisite chain before enrolment.
Read Futures Contracts, Margin and Payoffs as the foundation, Options on Futures as the main change in method, and Swaps and Integrated Derivative Risk as the final application of the course.
Worked example · free
Hedge an equity portfolio with index futures
- 1Define portfolio value, beta and contract exposure.
- 1Apply N = beta times portfolio value divided by futures exposure.
- 1Calculate 24 contracts and choose short direction.
- 1Explain rounding, beta instability and basis risk.
- 1State how the hedge changes if the target beta is not zero.
Key terms
- futures contract
- Exchange-traded agreement to buy or sell a specified underlying under standardised future terms. This chapter uses the concept when students trace a futures position through daily settlement and close-out.
- marking to market
- Daily settlement of futures gains and losses through the margin account. It helps explain the reasoning required to trace a futures position through daily settlement and close-out.
- margin call
- Requirement to restore margin after the account falls below its maintenance level. Its limit matters because leverage and daily cash settlement mean contract notional is not the initial cash paid.
- short hedge
- Short futures position used against an asset owned or expected to be sold. This chapter uses the concept when students choose direction and number of futures contracts for a commodity or portfolio exposure.
- basis
- Difference between spot and futures prices under a stated convention. It helps explain the reasoning required to choose direction and number of futures contracts for a commodity or portfolio exposure.
- minimum-variance hedge ratio
- Futures exposure per unit of asset exposure chosen to minimise variance under estimated co-movement. Its limit matters because basis, cross-hedge correlation and estimation drift prevent most hedges from being perfect.
- cost of carry
- Net financing, storage, income and convenience effects of holding an underlying to maturity. This chapter uses the concept when students derive forward or futures price from spot, rates and income.
- cash-and-carry arbitrage
- Trade combining spot financing and forward sale to exploit an overpriced forward under ideal assumptions. It helps explain the reasoning required to derive forward or futures price from spot, rates and income.
- continuous compounding
- Interest convention in which value grows exponentially at a continuously compounded rate. Its limit matters because transaction costs, short-sale limits, stochastic rates and non-investment assets can create departures from the simple identity.
- call option
- Right to buy the underlying at the strike under specified exercise terms. This chapter uses the concept when students draw option payoff and use parity or bounds to test a quoted price.
- put-call parity
- No-arbitrage relation joining European call, put, underlying and risk-free bond values. It helps explain the reasoning required to draw option payoff and use parity or bounds to test a quoted price.
- intrinsic value
- Immediate-exercise value floored at zero before premium and time value. Its limit matters because American exercise, dividends, borrowing constraints and transaction costs change the applicable relation.
- binomial tree
- Discrete model in which the underlying moves to specified up or down states each step. This chapter uses the concept when students build terminal payoffs and discount risk-neutral expected values through a tree.
- risk-neutral probability
- Pricing weight that makes the expected underlying growth equal the risk-free rate in the model. It helps explain the reasoning required to build terminal payoffs and discount risk-neutral expected values through a tree.
FNCE30007 FAQ
How is fnce30007 assessed?
10% tutorial participation, a 25% one-hour mid-semester test and a 65% three-hour final examination
What is the fnce30007 exam or final-task format?
The Week 6 test covers Lectures and Tutorials 1-4; the three-hour final covers all lectures and tutorials.
Does fnce30007 have a hurdle or component-level pass rule?
The current S2 guide explicitly states that the final examination has no hurdle requirement; the overall subject pass standard still applies.
Which offering does this fnce30007 guide cover?
It is aligned to Semester 2, 2026; confirm your enrolled class and timetable in the current institutional system.
Is this fnce30007 resource an official university guide?
No. It is an independent fnce30007 study resource; current institutional instructions remain authoritative for assessment operation.
How should futures contract be used in FNCE30007?
Exchange-traded agreement to buy or sell a specified underlying under standardised future terms. This chapter uses the concept when students trace a futures position through daily settlement and close-out. Use it to trace a futures position through daily settlement and close-out; remember that leverage and daily cash settlement mean contract notional is not the initial cash paid.
Where do students usually lose marks in fnce30007?
keeping position direction, contract units, compounding and replication aligned while recognising when basis risk, early exercise, dividends or model inputs break a memorised pricing relation
What prerequisites or restrictions apply to fnce30007?
Confirm the current Handbook eligibility and prerequisite chain before enrolment.
Questions students ask in each FNCE30007 chapter
- What is the main task in Futures Contracts, Margin and Payoffs?
- Trace a futures position through daily settlement and close-out. Chapter 01 · Futures Contracts, Margin and Payoffs
- What is the main task in Hedging with Futures and Basis Risk?
- Choose direction and number of futures contracts for a commodity or portfolio exposure. Chapter 02 · Hedging with Futures and Basis Risk
- What is the main task in Forward and Futures Pricing?
- Derive forward or futures price from spot, rates and income. Chapter 03 · Forward and Futures Pricing
- What is the main task in Option Properties, Payoffs and Bounds?
- Draw option payoff and use parity or bounds to test a quoted price. Chapter 04 · Option Properties, Payoffs and Bounds
- What is the main task in One-Period and Multi-Period Binomial Valuation?
- Build terminal payoffs and discount risk-neutral expected values through a tree. Chapter 05 · One-Period and Multi-Period Binomial Valuation
- What is the main task in Options on Futures?
- Distinguish futures-option payoff from a spot option and apply the matching pricing relation. Chapter 06 · Options on Futures
- What is the main task in Black-Scholes-Merton Valuation?
- Calculate a european option value and interpret volatility sensitivity. Chapter 07 · Black-Scholes-Merton Valuation
- What is the main task in Dividends and Early-Exercise Effects?
- Adjust option valuation and exercise reasoning for distributions. Chapter 08 · Dividends and Early-Exercise Effects
- What is the main task in Delta Hedging and Greeks?
- Calculate a delta hedge and explain why it must be monitored. Chapter 09 · Delta Hedging and Greeks
- What is the main task in Swaps and Integrated Derivative Risk?
- Value a swap as received cash flows less paid cash flows and connect it to risk management. Chapter 10 · Swaps and Integrated Derivative Risk
How to study for the exam
Retrieve the course map, practise the recurring method—specify the derivative contract, position, units and maturity, draw terminal cash flows, derive price by cash-and-carry or replication, calculate hedge or sensitivity, then test bounds and market assumptions—on changed scenarios, and verify every operational assessment detail in the live institutional system.
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