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2012/2013  BA-HA_HU86  Financial Derivatives

English Title
Financial Derivatives

Course information
Language English
Exam ECTS 7.5 ECTS
Type Elective
Level Bachelor
Duration Summer
Course period NOTE: The course schedule is at the moment ONLY available at www.cbs.dk/summer
Time Table Please see course schedule at e-Campus
Study board
Study Board for BSc in Economics and Business Administration
Course coordinator
  • Faculty - Dorothy L. McAleer, IESEG School of Management
    Patricia Plackett - Department of Operations Management
Main Category of the Course
  • Finance
Last updated on 23-04-2012
Learning objectives
Students should be able to:
  • Distinguish between Futures, Forwards, Swaps and Options (calls and puts).
  • Apply each of these securities to a particular risk hedging situation.
  • Price each of the securities and identify the factors that affect its value.
  • Explain the risk enhancing and risk mitigating characteristics of each security.
  • Evaluate the impact of (debt) leverage on the performance of a portfolio of securities.
  • Evaluate the impact of the presence of a derivative on the performance of portfolio of securities.
Prerequisite
Students should have a basic understanding of fundamental financial concepts such as the time value of money, compounding (discrete and continuous time), risk and return, and basic concepts of valuation (stocks and bonds). An introductory course in calculus would be helpful, but is not necessary.
Examination
Financial Derivatives
4 hour written exam:
Type of test Written Exam
Marking scale 7-step scale
Second examiner No second examiner
Exam period Summer Term
Aids Closed Book
Duration 4 Hours

Mandatory feedback assignment: Students must take part in a mandatory group presentation (Duration: 15-20 minutes) during the course period in order to qualify for the exam.


Closed book exam: Students will be provided a formula sheet produced by the instructor.  Also, students may use a financial calculator.

Course content
This course is an introduction to a rapidly growing and misunderstood segment of financial markets.  The use of derivatives has at times generated a great deal of controversy. For decades, many people argued that options and futures are simply legalized forms of gambling. Over the past fifteen years, however, the explosion in the use of derivatives has brought them into the mainstream. Even small firms face commodity, currency and interest rate risk that can be managed with derivatives. The misuse of derivatives, however, has sparked another wave of controversy that places advocates on the defensive.
The course will focus on the use of financial derivatives, including options, forwards, futures and swaps.  Topics are approached with a blend of theory and practice.  I will emphasize pricing methods and strategies involving the use of the respective securities with the objective of preparing the student to properly understand and use derivative securities in managing the financial risks of business.
As we move through the course a security will be introduced to the student along with its application to decision making in a corporate environment, then we will address an appropriate pricing method. 
I have found that the biggest problem faced by students is their apprehension stemming from the complex nature of the securities.  Typically, the securities are like nothing they have ever encountered.  Nevertheless, once the initial intimidation subsides, they appreciate the enormous applicability of the course content to financial decision making.
 
 
The course’s development of personal competences:
 
Students will have a much richer understanding of modern financial markets and the instruments that “caused” the recent international financial crisis.  Furthermore, students will find that the analytical tools necessary to understand and price derivative securities are highly valued in the market place.
Teaching methods
The course will consist primarily of very interactive lectures. After a security is covered, students will form groups to solve a case (outside of class) that employs the security in question in a relatively real world application. Furthermore, students will be given homework assignments. The cases will be covered in class after they are completed.
Expected literature
Required Textbook: Fundamentals of Futures and Options Markets, 7/E,by John C. Hull, Prentice-Hall, 2011.
The book has 624 pages, we’ll cover a little less than half, jumping around quite a bit.
Total pages for the cases is between 50 and 100 pages.
 
Students should also have a financial calculator with which they are comfortable and ready access to a computer for Excel applications
Last updated on 23-04-2012