Program Overview
Program Overview
The MSc programme in Economics offers an elective course, Pricing Financial Assets (F), which is part of the Financial line. This course is open to exchange and guest students from abroad, credit students from Danish universities, and open university students.
Course Description
The course covers the valuation of financial assets and derivatives, with an emphasis on arbitrage pricing and hedging. It introduces different methods for arbitrage-free pricing, providing students with a toolset for various valuation problems. The course applies theory and methods to core financial derivatives, including equity, commodity, currency, credit, and interest rate derivatives.
Learning Outcomes
After completing the course, students are expected to be able to:
- Define the main types of financial assets and derivatives, their definitions, and risk characteristics.
- Account for the concept of arbitrage-free pricing and its importance in modern financial theory.
- Reflect on core mathematical methods related to these models, including selected proofs and numerical methods.
- Utilize methods of arbitrage-free pricing to particular pricing and risk hedging problems.
- Apply mathematical toolsets to produce quantitative valuations and risk assessments.
- Evaluate the limitations of pricing methods and the risk involved in practical implementation.
Literature
The main textbook for the course is "Options, Futures and Other Derivatives" by John C. Hull, 10th edition, 2018. Additional notes, "Supplements in Finance Theory," by Frank Hansen, 2009, can be downloaded from the course website.
Syllabus
The course syllabus includes:
- The binomial model
- The one-period model
- The multi-period model
- Wiener processes and Ito's lemma
- The Black-Scholes-Merton model
- Options on stock indices and currencies
- Futures options
- The Greek letters
- Credit risk
- Credit derivatives
- Martingales and measures
- Interest Rate Derivatives: The standard market models
- Interest Rate Derivatives: Models of the short rate
- Interest Rate Derivatives: HJM and LMM
Recommended Academic Qualifications
The course requires knowledge of basic microeconomics and elementary mathematics and statistics. It is recommended that students have followed a similar course, such as "Corporate Finance and Incentives" or "Financial Decision Making," and have knowledge of financial derivatives.
Teaching and Learning Methods
The course consists of lectures, with a schedule of 2 hours, 1 to 2 times a week, from week 6 to 20.
Workload
The total workload for the course is 206 hours, broken down into:
- Lectures: 42 hours
- Preparation: 161 hours
- Exam: 3 hours
Exam
The exam is an on-site written exam, 3 hours under invigilation, with no aids allowed. The marking scale is a 7-point grading scale, with no external censorship.
Re-exam
The re-exam is the same as the ordinary exam.
Criteria for Exam Assessment
Students are assessed on their mastery of the learning outcomes for the course. To obtain the top grade, students must demonstrate an excellent performance, displaying a high level of command of all aspects of the relevant material. To obtain the passing grade, students must demonstrate a minimal acceptable level of the knowledge, skills, and competencies listed in the learning outcomes.
Course Information
- Language: English
- Course code: AØKK08095U
- Credit: 7.5 ECTS
- Level: Full Degree Master
- Duration: 1 semester
- Placement: Spring
- Study board: Department of Economics, Study Council
- Contracting department: Department of Economics
- Contracting faculty: Faculty of Social Sciences
- Course Coordinators: Henrik Olejasz Larsen
- Lecturers: See ‘Course Coordinators’
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