GRA 6535 Derivatives

GRA 6535 Derivatives

Course code: 
GRA 6535
Department: 
Finance
Credits: 
6
Program of study: 
Master of Science in Finance
Course coordinator: 
Paul Ehling
Product category: 
Master
Portfolio: 
MSc in Finance
Semester: 
2019 Autumn
Active status: 
Active
Teaching language: 
English
Course type: 
One semester
Introduction

This course provides thorough understanding of the workings and pricing of derivative securities.

We cover model-free no-arbitrage bounds for derivatives prices, the binomial model and its continuous time limit, the mathematics of continuous time, the Black-Scholes model and its derivation, adjusting the Black-Scholes and binomial models to price futures and currency options, delta hedging and more fancy hedging, exotic derivatives, real options, executive options, credit risk, etc. A significant part of the course focuses on the numerical valuation of options.

Learning outcomes - Knowledge

By the end of the course the students are expected to know:

  • model-free, Binomial, and Black-Scholes pricing of options
  • hedging of options
Learning outcomes - Skills

By the end of the course the students are expected to be able to:

  • value standard and exotic options using formulas or simple trees
  • code up option pricing models as trees or us Monte Carlo
General Competence

The students by the end of the course are expected to be able to reflect on the workings and limitations of option pricing theory.

Course content

1. Introduction

  • Options markets
  • Model-free no-arbitrage bounds
  • Trading strategies with options

2. Pricing

  • Binomial Trees
  • Wiener Processes, Ito’s Lemma, Black-Scholes-Merton and beyond
  • The Greeks

3. Numerical Methods and Applications

  • Empirical Performance of Option Pricing Models
  • Numerical Techniques
  • Exotic Options, Volatility Smiles, Risk Management
  • Real Options and Credit Risk
  • International Derivatives Markets
  • Environmental Derivatives
Teaching and learning activities

Mostly lectures with theory, examples, in class discussion, small cases, and exercises Learning by doing: take home exam Class participation is crucial for discussions, cases, and examples

Software tools
Matlab
Additional information

Please note that while attendance is not compulsory in all courses, it is the student’s own responsibility to obtain any information provided in class.

This is a course with continuous assessment (several exam components) and one final exam code. Each exam component is graded by using points on a scale from 0-100. The components will be weighted together according to the information in the course description in order to calculate the final letter grade for the examination code (course). Students who fail to participate in one/some/all exam elements will get a lower grade or may fail the course. You will find detailed information about the point system and the cut off points with reference to the letter grades when the course starts.

At resit, all exam components must, as a main rule, be retaken during next scheduled course.

Honour Code

Academic honesty and trust are important to all of us as individuals, and represent values that are encouraged and promoted by the honour code system. This is a most significant university tradition. Students are responsible for familiarizing themselves with the ideals of the honour code system, to which the faculty are also deeply committed.

Any violation of the honour code will be dealt with in accordance with BI’s procedures for cheating. These issues are a serious matter to everyone associated with the programs at BI and are at the heart of the honour code and academic integrity. If you have any questions about your responsibilities under the honour code, please ask.

Qualifications

All courses in the Masters programme will assume that students have fulfilled the admission requirements for the programme. In addition, courses in second, third and/or fourth semester can have spesific prerequisites and will assume that students have followed normal study progression. For double degree and exchange students, please note that equivalent courses are accepted.

Exam categoryWeightInvigilationDurationSupport materialsGroupingComment exam
Exam category:
Activity
Form of assessment:
Class participation
Exam code:
GRA65353
Grading scale:
Point scale
Grading rules:
Internal examiner
Resit:
All components must, as a main rule, be retaken during next scheduled course
20No 1 Semester(s)Individual
Exam category:
Submission
Form of assessment:
Written submission
Exam code:
GRA65353
Grading scale:
Point scale
Grading rules:
Internal examiner
Resit:
All components must, as a main rule, be retaken during next scheduled course
20No48 Hour(s)Group ( 2 - 3)Take-home examination
Exam category:
Submission
Form of assessment:
Written submission
Exam code:
GRA65353
Grading scale:
Point scale
Grading rules:
Internal and external examiner
Resit:
All components must, as a main rule, be retaken during next scheduled course
60Yes3 Hour(s)
  • BI-approved exam calculator
  • Simple calculator
  • Bilingual dictionary
Individual Written examination under supervision.
Exams:
Exam category:Activity
Form of assessment:Class participation
Weight:20
Invigilation:No
Grouping (size):Individual
Support materials:
Duration: 1 Semester(s)
Comment:
Exam code:GRA65353
Grading scale:Point scale
Resit:All components must, as a main rule, be retaken during next scheduled course
Exam category:Submission
Form of assessment:Written submission
Weight:20
Invigilation:No
Grouping (size):Group (2-3)
Support materials:
Duration:48 Hour(s)
Comment:Take-home examination
Exam code:GRA65353
Grading scale:Point scale
Resit:All components must, as a main rule, be retaken during next scheduled course
Exam category:Submission
Form of assessment:Written submission
Weight:60
Invigilation:Yes
Grouping (size):Individual
Support materials:
  • BI-approved exam calculator
  • Simple calculator
  • Bilingual dictionary
Duration:3 Hour(s)
Comment:Written examination under supervision.
Exam code:GRA65353
Grading scale:Point scale
Resit:All components must, as a main rule, be retaken during next scheduled course
Type of Assessment: 
Continuous assessment
Grading scale: 
ECTS
Total weight: 
100