Derivatives and Risk Management

FIE425 Derivatives and Risk Management

  • Topics



    • Pricing by replication in the absence of arbitrage possibilities.
    • Binomial model of derivative pricing.
    • Black and Scholes model of derivative pricing.
    • Pricing of derivatives by Monte Carlo simulation.
    • Forward/futures.
    • Options.
    • Exotic options
    • American/European/Asian types of derivatives.
    • Hedging/replication/risk management
    • If time allows: Value at Risk, credit risk.

  • Learning outcome

    Learning outcome

    The course provides knowledge about derivative instruments, how deriva-

    tives are priced and how they are used in risk management.


    After completing the course, students

    • have knowledge of different derivative instruments.
    • understand how derivatives are priced.
    • understand how to replicate a derivative instrument's cashow.
    • understand how derivative instruments are used in risk management.
    • can apply the general pricing theory to value new kinds of derivative instruments.
    • are able to communicate their knowledge both written and orally.

  • Teaching


    Lectures and problem sets. Atcive student participation is strongly encouraged. Lectures are taught in English.

  • Requirements for course approval

    Requirements for course approval

    Approved problem sets.

  • Assessment


    Final exam, comprising a 4 hour written school exam. The final exam is in English.

  • Grading Scale

    Grading Scale

    Grading scale A-F.

  • Computer tools

    Computer tools

    Knowledge of spreadsheet program. Knowledge of additional programming languages are not required for this class, but may be an advantage for students who want to specialize in derivatives. Students will be informed about any additional computer tools when classes start.

  • Semester



  • Literature


    Under revision. Students will be informed when classes start.


ECTS Credits
Teaching language

Course responsible

Svein-Arne Persson, Department of Finance.