Pricing Financial Assets (F)
Course content
The course covers valuation of financial assets and derivatives with an emphasis on arbitrage pricing and hedging. Different methods for arbitrage free pricing are introduced with the purpose of providing the student with a toolset that can be utilized most suitably for the valuation problem at hand. The theory and methods are applied to core financial derivatives which are introduced and given a rigorous definition with a further coverage of the institutional settings and conventions that has developed for such contracts and the trading thereof. Derivatives are covered in abstract generality as well as in practical implementations in the form of equity, commodity, currency, credit and interest rate derivatives.
MSc programme in Economics – elective course
The course is part of the Financial line at the MSc programme in
Economics, symbolized by ‘F’.
The course is open to:
- Exchange and Guest students from abroad
- Credit students from Danish Universities
- Open University students
After completing the course the student is expected to be able to:
Knowledge:
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Define the main types of financial assets and derivatives, their definitions and their risk characteristics as well as the institutional framework for such contracts and the trading thereof.
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Account for the concept of arbitrage free pricing, the importance of this approach in modern financial theory, and the various methods that can be applied for such pricing.
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Reflect on the core mathematical methods related to these models including selected proofs and numerical methods.
Skills:
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Utilize the methods of arbitrage free pricing to particular pricing and risk hedging problems and to choose the most applicable method.
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Apply the mathematical toolset to produce quantitative valuations and risk assesments.
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Evaluate the limitations of the pricing methods and the risk involved in the practial implementation in both pricing and risk hedging.
Competences:
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Extract from a complicated practical setting the relevant financial risk elements that can be analyzed and to adapt the methodology to the problem at hand.
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Apply arbitrage free pricing methods and risk hedging to new financial instruments, their definition and development.
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Master the limitiations of different pricing and hedging methodologies to modify the approach and/or make sound judgements on the direction and size of pricing errors and residual, non-hedged risks.
Lectures.
Main textbook:
- John C. Hull: "Options, Futures and Other Derivatives," 10th edition 2018, Pearson Education, Prentice-Hall. ISBN 978-0-13-463149-3 (or later edition).
Notes:
- Frank Hansen: "Supplements in Finance Theory,” 2009, University of Copenhagen. Can be downloaded from the course website.
Syllabus:
- The binomial model; Hull Chapter 13.
- The one-period model; Suppl. Section 1, pp. 2-5.
- The multi-period model; Suppl. Section 2, pp. 7-14.
- Wiener processes and Ito's lemma; Hull Chapter 14.
- The Black-Scholes-Merton model; Hull Chapter 15.
- Options on stock indices and currencies; Hull Chapter 17.
- Futures options; Hull Chapter 18.
- The Greek letters; Hull Chapter 19.
- Credit risk; Hull Chapter 24.
- Credit derivatives; Hull Chapter 25.
- Martingales and measures; Hull Chapter 26.
- Interest Rate Derivatives: The standard market models; Hull Chapter 29.
- Interest Rate Derivatives: Models of the short rate; Hull Chapter 31-32.
- Interest Rate Derivatives: HJM and LMM; Hull Chapter 33.
The course requires certain knowledge of basic microeconomics
and elementary mathematics and statistics.
It is strongly recommended that a similar course as "Corporate
Finance and Incentives" or "Financial Decision
Making" at the study programme in Economics, University of
Copenhagen, have been followed. Including having knowledge of
financial derivatives as forwards, futures and call and put options
as they are covered in the first chapters of the main textbook that
are not included in the syllabus.
Schedule:
2 hours lectures 1 to 2 times a week from week 6 to 20.
The overall schema for the Master can be seen at KUnet:
MSc in Economics => "courses and teaching" =>
"Planning and overview" => "Your timetable"
KA i Økonomi => "Kurser og undervisning" =>
"Planlægning og overblik" => "Dit skema"
Timetable and venue:
To see the time and location of lectures please press the link
under "Timetable"/"Se skema" at the right side
of this page (F means Spring).
Please be aware:
- The schedule of the lectures can change without the participants´
acceptance. If this occure, you can see the new schedule in your
personal timetable at KUnet, in the app myUCPH and through the
links in the right side of this course description and the link
above.
- It is the students´s own responsibility continuously throughout
the study to stay informed about their study, their teaching, their
schedule, their exams etc. through the curriculum of the study
programme, the study pages at KUnet, student messages, the course
description, the Digital Exam portal, Absalon, the personal schema
at KUnet and myUCPH app etc.
for enrolled students: Rules etc at Master(UK) and Master(DK)
Foreign students and guests: Information about admission requirements, application, tuition fee, registration at Study Economics. Please read the curriculum before enrolment.
Efteruddannelse, gæste- og enkelfagsstuderende: Ansøgning, optag, pris etc. se Uddannelse i Økonomi. Læs venligst studieordningen inden tilmelding.
- ECTS
- 7,5 ECTS
- Type of assessment
-
On-site written exam, 3 hours under invigilation
- Type of assessment details
- ITX-exam in the exam venues of the university.
- Exam registration requirements
-
There are no requirements during the course that the student has to fulfill to be able to sit the exam.
- Aid
- Without aids
- Marking scale
- 7-point grading scale
- Censorship form
- No external censorship
- Exam period
-
Exam information:
The examination date can be found in the exam schedule here
The exact time and place will be available in Digital Exam from the middle of the semester.
More information about examination, rules, aids etc. at Master (UK) and Master (DK).
- Re-exam
-
Same as the ordinary exam.
Exam information:
The reexamination date/period can be found in the reexam schedule here
Exact day, time and place: See Digital Exam in February/August.
More info: Master(UK) and Master(DK).
Criteria for exam assessment
Students are assessed on the extent to which they master the learning outcome for the course.
In order to obtain the top grade "12", the student must with no or only a few minor weaknesses be able to demonstrate an excellent performance displaying a high level of command of all aspects of the relevant material and can make use of the knowledge, skills and competencies listed in the learning outcomes.
In order to obtain the grade “02”, the student must in a satisfactory way be able to demonstrate a minimal acceptable level of the knowledge, skills and competencies listed in the learning outcomes.
Single subject courses (day)
- Category
- Hours
- Lectures
- 42
- Preparation
- 161
- Exam
- 3
- English
- 206
Kursusinformation
- Language
- English
- Course number
- AØKK08095U
- ECTS
- 7,5 ECTS
- Programme level
- Full Degree Master
- Duration
-
1 semester
- Placement
- Spring
- Go to 'Signup' for information about registration and enrollment.
- Price
-
Information about admission and tuition fee: Master and Exchange Programme, credit students and guest students (Open University)
- Schedulegroup
-
and venue:
- For teaching: Go to 'Remarks'.
- For exam and re-sits: Go to 'Exam'. - Studyboard
- Department of Economics, Study Council
Contracting department
- Department of Economics
Contracting faculty
- Faculty of Social Sciences
Course Coordinator
- Henrik Olejasz Larsen (21-6e6b74786f713475726b7067798034726778796b74466b69757434717b346a71)
Teacher
See ‘Course Coordinators’
Please read "Remarks" regarding the schedule of the
teaching.
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Kursusinformation for indskrevne studerende