AØKA08204U Fixed Income Derivatives: Risk Management and Financial Institutions (F) CANCELED
MSc programme in Economics – elective course
The course is part of the Financial line symbolized by
"F"
MSc programme in mathematics-economics
Over the last decades there has been an explosive growth in the use of fixed income derivatives. Derivatives are now commonly used not only in financial institutions but also in many private and public entities. At the same time, the widespread use of derivatives is often blamed for playing a destabilizing role in the recent financial crisis.
The course will give a thorough understanding of fixed income derivatives, with a focus on how they are used and traded in practice. Fixed income markets, including interest rate swaps, swaptions, caps, floors and credit default swap indices, are some of the most actively traded financial markets, and underpin much of the banking system.
Using the quantitative tools employed in industry, students will learn how to characterize financial risks and how derivatives can be used to mitigate these. As such the course is relevant for students interested in pursuing careers in investment banking, in a public or private treasury operation or within the regulatory authorities.
The lectures will be quite quantitative in nature, as the main pricing models will be derived and explained in detail. Nonetheless, lectures will also focus on how derivatives are traded in practice and considerable time will be spent on covering various market standards to ensure that the models are practically applicable. The focus will be on products that are actually traded – how they work, how they are priced and how the risk is quantified and hedged – in a framework that is as close to reality as possible.
Next to the lectures, students will spend considerable time building pricing and risk management models using Excel and VBA. By the end of the course, students will have built a small pricing library that is as close to market standards as possible.
After completing the course, the student should be able to:
Knowledge:
Understand the mechanics of derivatives markets
Understand market terminology regarding fixed income derivatives
Understand the concept of hedging and the relation to pricing
Understand the nature of the risk(s) associated with the different instruments covered in the course
Understand the nature and motivation of the different participants in the fixed income derivatives markets
Skills:
Use pricing models in Excel/VBA to compute prices and hedge ratios of plain vanilla derivatives
Assess and quantify the risks associated with different instruments and construct an appropriate hedge
Assess the appropriateness of different pricing models in a given situation
Critically assess news media coverage of derivatives
Competencies:
Apply models and concepts in a real-world setting, e.g. by devising and executing an interest rate hedge for a corporate bond issue
Identify badly structured derivatives that could lead to disastrous outcomes for both counterparties
- Independently implement standard (closed-form) pricing models in Excel/VBA
The syllabus for the course in Spring 2016:
Linderstrøm, M. D. (2010). “Fixed income derivatives.” Lecture Notes, University of Copenhagen
Lecture slides and additional lecture notes
Hagan, P. et al (2002). “Managing smile risk”. Wilmott Magazine (2002)
Hagan P. and G. West (2006). Methods for Constructing a Yield Curve. Wilmott Magazine
Furthermore, VBA programming will be an integral part of the course. While no prior knowledge of VBA is assumed, students are expected to have some basic programming experience and some familiarity with Excel is a definite plus.
In exchange for a reading list that is short in terms of the page count, the lectures will be dense and students are expected to devote considerable time over the course of the semester to implement pricing functions in VBA/Excel. To facilitate this, lectures will address not only the relevant theory but also include computer sessions that address practical issues.
3 hours of lectures per week for 14 weeks.
The course is canceled in Spring 2017.
- Category
- Hours
- Exam
- 48
- Lectures
- 42
- Preparation
- 116
- Total
- 206
for enrolled students. More information about registration, schedule, rules, courses etc. can be found at the student intranet (KUnet) for courses (English) andstudent intranet (KUnet) for courses (Danish).
Registration and information for foreign students not enrolled please find more information at Study Economics.
For enkelfagsstuderende sker tilmelding via Åbent Universitet og Merit.
- Credit
- 7,5 ECTS
- Type of assessment
- Written assignment, 48 hoursindividual 48 hours take-home assignment. The exam assignment is given in English and can be answered in English or in Danish. Language must be chosen at the course registration.
- Exam registration requirements
None
- Aid
- All aids allowed
- Marking scale
- 7-point grading scale
- Censorship form
- External censorship
100 % censorship
- Exam period
There will be no ordinary exam.
For enrolled students more information about examination, exam/re-sit, rules etc. is available at the student intranet for Examination (English) and student intranet for Examination (KA-Danish).
- Re-exam
Students who need to take the reexam have to sign up in the exam registration period in March. More information will be given after your registration.
If only a few students have registered for the re-exam, the exam might change to an oral exam including the date, time and place for the exam, which will be informed by the Examination Office.
Criteria for exam assesment
Students are assessed on the extent to which they master the learning outcome for the course.
To receive the top grade, the student must be able to demonstrate in an excellent manner that he or she has acquired and can make use of the knowledge, skills and competencies listed in the learning outcomes.
Course information
- Language
- English
- Course code
- AØKA08204U
- Credit
- 7,5 ECTS
- Level
- Full Degree Master
- Duration
- 1 semester
- Placement
- Spring
- Schedule
- Spring:
The course is canceled in spring 2017, The course will not be offered again. - Continuing and further education
- Price
- Study board
- Department of Economics, Study Council
Contracting department
- Department of Economics
Course responsibles
- Elisabeth Casas Casanova (3-6765654267657170306d7730666d)
Lecturers
Lectures: No lecturers available from Spring 2017. The course will not be offered again.