FIE425 Derivatives and Risk Management

• Topics

  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

  Knowledge

  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.

   

  Skills

   

  • 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.

  General competence

  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.

• Teaching

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

• 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 A-F.

• 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.

• Literature

  Under revision. Students will be informed when classes start.