AØKK08095U  Pricing Financial Assets

Volume 2013/2014
Education
MSc in Economics
Content
The course will cover valuation of financial assets and derivatives with an emphasis on arbitrage pricing and hedging. Elementary finance as in Corporate Finance and Incentives, BSc, 3rd year must also be covered
Learning Outcome
The students will acquire an understanding of core areas of modern financial theory and the ability to apply different models of this field to problems of both theoretical and practical interest.

At the end of the course the student should also be familiar with main types of financial assets and derivatives, their risk characteristics and be able to discuss and apply relevant methods for pricing and hedging.
Students are also expected to obtain an understanding of the mathematical methods related to these models including selected proofs and numerical methods.

The excellent performance is characterized by a good knowledge of the theories, methods, models and proofs covered in the course together with the ability to apply these competencies to theoretical and practical problems more generally than the examples covered in the syllabus, utilizing both discrete time models and continuous time models.
Syllabus
Textbook: John C. Hull: "Options, Futures and Other Derivatives," 8th edition 2012, Pearson Education, Prentice-Hall.
Notes: Frank Hansen: "Supplements in Finance Theory,” 2009, University of Copenhagen.
The binomial model; Hull Chapter 12.
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 13.
The Black-Scholes-Merton model; Hull Chapter 14.
Options on stock indices and currencies; Hull Chapter 16.
Futures options; Hull Chapter 17.
The Greek letters; Hull Chapter 18.
Credit risk; Hull Chapter 23.
Credit derivatives; Hull Chapter 24.
Martingales and measures; Hull Chapter 27.
Interest Rate Derivatives: The standard market models; Hull Chapter 28.
Interest Rate Derivatives: Models of the short rate; Hull Chapter 30.
Interest Rate Derivatives: HJM and LMM; Hull Chapter 31.
The course requires certain knowledge of basic microeconomics and elementary mathematics and statistics. The course also requires the BA-course in finance.
3 hours of lectures per week for 14 weeks.
Credit
7,5 ECTS
Type of assessment
Written examination, 3 hours under invigilation
A 3 hours written assignment taking place at Peter Bangs Vej 36.
Aid
Without aids
Marking scale
7-point grading scale
Censorship form
External censorship
100 % censurship
Exam period
Will be updated before the start of the semester
Re-exam
Same as ordinary. But if only a few students have registered for the re-exam, the exam might change to an oral exams with a synopsis to be handed in. This means that the examination date also will change.
Criteria for exam assesment
The Student must in a satisfactory way demonstrate that he/she has mastered the learning outcome of the course.
  • Category
  • Hours
  • Lectures
  • 42
  • Preparation
  • 161
  • Exam
  • 3
  • Total
  • 206