Seminar: Conditional Risk and Risk Pricing (F)
Course content
The questions that we raise (and try to answer) are:
1) How do risks in financial markets vary over time?
2) How are these time-varying risks priced? Both in the
cross-section and at different points in time.
The seminar is centered around four related strings of literature.
1) Conditional CAPM – The CAPM is a one-period model that holds
period for period. Nevertheless, in most empirical implementations,
the model is used in an unconditional way, neglecting potential
changes in risk exposure over time. We will discuss empirical
implementations of the CAPM what allows for time-varying market
betas.
2) Market Tail risk – The distribution of market returns varies
over time in a systematic way. We will discuss the cyclical
patterns of market tail risk and how such tail risk can be computed
from observable market prices.
3) Price of market risk – A basic premise in finance is that
investors dislike risk. So, for an investor to take on extra risk,
she needs to be compensated adequately. Adequate compensation
generally relies on two components: (1) the amount of risk and (2)
the price per unit of that risk. We will discuss how market risk is
priced over time.
4) Recovery theory – Lastly, we will discuss a particular
literature that attempts to estimate both risk and the price of
risk from observable market prices.
The seminar is primarily for students at the MSc of Economics.
The course is a part of the financial line, signified by (F)
The objective of this seminar is to obtain an understanding of the current state-of-the-art literature on conditional risk in financial markets and how this risk is priced over time.
The focus of the seminar is financial economics and less so on
econometric methods and mathematical details.
After completing the seminar the student is expected to be able to fulfill the learning outcome specified in the Master curriculum and to be able to:
Knowledge:
• Define relevant research purpose and structure a seminar paper.
• Account for key economic theories/approaches relevant for the
seminar paper.
• Account for alternative theories/approaches relevant for the
seminar paper.
• Reflect and criticize existing theories/empirical work on the
chosen topic.
Skills:
Assess previous literature and choose, with a motivation, an approach to be used in the seminar paper.
• Analyze own results and evaluate those results given the existing
literature on the topic.
• Communicate own results in a scientific and professional
manner.
• Present own work and discuss other seminar papers in a scientific
and professional manner.
Competencies:
- Plan a research project.
- Implement methods used in the literature.
- Initiate, be responsible for and carry out an independent empirical analysis.
- Initiate collaborations
Students receive individual guidance from the instructor.
Students prepare a draft assignment, which they present to the
teacher and the other students. The students take turns acting as
opponents during each other’s presentations. The feedback should
especially focus on the written presentation in the draft
assignment, with particular emphasis on the
introduction.
Suggested readings are journal articles published in the most prestigious and impactful finance journals:
JF: Journal of Finance
JFE: Journal of Financial Economics
RFS: Review of Financial Studies
Conditional CAPM:
• Lewellen and Nagel (JFE, 2006)
• Kelly, Moskowitz, and Pruitt (JFE, 2021)
• Gormsen and Jensen (JFE, 2024)
Market tail risk:
• Bollerslev, Todorov, and Xu (JFE, 2015)
• Kelly and Jiang (RFS, 2014)
• Gormsen and Jensen (JF, 2026)
Price of market risk:
• Muir and Moreira (JF, 2017)
• Schreindorfer and Sichert (JFE, 2025)
• Jensen and Lazarus (Working paper, 2026)
Recovery theory:
• Ross (JF, 2015)
• Jensen, Lando, and Pedersen (JFE, 2019)
A basic understanding of linear algebra is an advantage.
Exact dates will be available in the seminar’s course room no
later than 14 days before the start of the semester
• Kick-off meeting: Week 6 / 36. See exact date in Absalon.
• Additional meetings/introductory teaching/guidance: Optional. See
Absalon.
• Deadline for submission of commitment paper/project description:
No later than February 28 / September 30.
• Deadline for uploading seminar paper draft in Absalon: No later
than one week before the presentations. See exact date in Absalon.
• Presentations: In the period November 20 – December 11 for the
autumn semester and May 1 – 23 for the spring semester.
See exact dates in Absalon.
• Common submission date for all seminars: December 20 at 10:00 for
the autumn semester and June 1 at 10:00 for the spring
semester.
More information about seminars is available at Seminars (UK) and Seminars (DK).
Read about the study programme and curricula at MSc in Economics
- ECTS
- 7,5 ECTS
- Type of assessment
-
Home assignment
- Type of assessment details
- Individual or in groups of up to 3.
A seminar paper of 15 standard pages for one person, 22.5 standard pages for 2 and 30 standard pages for 3 students.
See further exam information in the Masters Programme Curriculum. - Examination prerequisites
-
Attendance in all seminar activities as stated in the Master curriculum.
Reexam: Hand in and have approved a synopsis.
- Aid
- All aids allowed
Use of AI tools is permitted. You must explain how you have used the tools. When text is solely or mainly generated by an AI tool, the tool used must be quoted as a source.
- Marking scale
- 7-point grading scale
- Censorship form
- External censorship
- Exam period
-
The seminar paper must be uploaded in Digital Exam.
Common submission date for all seminars: December 20 at 10:00 for the autumn semester and June 1 at 10:00 for the spring semester.
For enrolled students more information about examination, rules, aids etc. is available at the intranet for Master (UK) and Master (DK ).
- Re-exam
-
Individual seminar paper of 15 standard pages. See further exam information in the Masters Programme Curriculum.
Deadline and more information is available at MSc in Economics - KUnet
More information about reexam etc is available at Master(UK) and Master(DK).
Criteria for exam assessment
Students are assessed on the extent to which they master the learning outcome for the seminar and can make use of the knowledge, skills and competencies listed in the learning outcomes in the Curriculum of the Master programme.
- Category
- Hours
- Project work
- 186
- Seminar
- 20
- English
- 206
Kursusinformation
- Language
- English
- Course number
- AØKK08450U
- ECTS
- 7,5 ECTS
- Programme level
- Full Degree Master
- Duration
-
1 semester
- Placement
- Autumn And Spring
- Capacity
- One class of up to 20 students
- Studyboard
- Department of Economics, Study Council
Contracting department
- Department of Economics
Contracting faculty
- Faculty of Social Sciences
Course Coordinator
- Christian Skov Jensen (3-67776e4469677372326f7932686f)
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