FIE425 Derivatives and Risk Management
- 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.
- Exotic options
- American/European/Asian types of derivatives.
- Hedging/replication/risk management
- If time allows: Value at Risk, credit risk.
The course provides knowledge about the basic derivative instruments, the principles of derivative pricing and how such instruments are used in risk management. Students understand pricing by arbitrage.
- know how to replicate any derivative instrument's cashflow either by other derivatives or by so-called underlying assets.
- can apply specific models based on no-arbitrage pricing theory to value new kinds of derivative instruments.
- suggest proper use of derivatives for various hedging situations.
A student will be able to communicate knowledge, both written and orally to both academic and market specialists of derivatives and to assess risk connected to the use of basic derivatives.
Regular classes 2x 45 minutes once a week, which will be recorded.Some lectures may be substituted with digital zoom, also recorded .Some shorter instructional videos may be made available.
Active student participation is strongly encouraged.
Teaching language is English.
Requirements for course approval
One approved problem set - to be solved in groups and presented in class.
Final exam, comprising a 4 hour individual written take home exam. The final exam must be written in English.
Grading scale A-F.
Familiar with spreadsheets. Knowledge of programming languages (R, C++, etc) are not required for this class, but may be an advantage. Examples of computer code are used for instructional purposes.
Robert L. McDonald, Derivatives Markets, 3rd edition.
Additional notes and papers distributed via Canvas.
- ECTS Credits
- Teaching language
Autumn. Offered Autumn 2021.
Professor Svein-Arne Persson, Department of Finance, NHH