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2014/2015  KAN-CCMVI2017U  Graduate financial modeling

English Title
Graduate financial modeling

Course information

Language English
Course ECTS 7.5 ECTS
Type Elective
Level Full Degree Master
Duration Summer
Course period Summer
Timetable Course schedule will be posted at calendar.cbs.dk
Study board
Study Board for MSc in Economics and Business Administration
Course coordinator
  • Course instructor - Dr. Jim Bennett, University of Southern Maine
    Patricia Plackett - MPP
Main academic disciplines
  • Finance
  • Methodology
Last updated on 23-07-2014
Learning objectives
At the end of this course, students should be able to:
  • Determine the impact of an event on an asset’s price by identifying required data, implementing standard event study methodology, and interpreting the results
  • Perform returns-based style analysis in order to determine the investment style used by a manager and to determine the extent of any style drift over time
  • Understand the concepts associated with mean-variance portfolio choice, the key issues identified with this approach, and several covariance estimation techniques used to improve the practical effectiveness of the approach
  • Understand a variety of standard asset allocation strategies and their properties
  • Understand and implement several approaches to option valuation
  • Understand the use of options and possess the ability to build models allowing the evaluation of option-based investment strategies
Course prerequisites
Students should have successfully completed an introductory graduate finance course. Also, since this course has an emphasis on model implementation via MS Excel, a basic familiarity with the use of spreadsheets will be helpful.
Prerequisites for registering for the exam
Number of mandatory activities: 1
Compulsory assignments (assessed approved/not approved)
Mandatory Mid-term Assignment: The Mid-term Assignment will require student groups to present their designs and analysis of a hypothetical financial product.
4-hours Written Exam:
Exam ECTS 7,5
Examination form Written sit-in exam
Individual or group exam Individual
Assignment type Written assignment
Duration 4 hours
Grading scale 7-step scale
Examiner(s) One internal examiner
Exam period Summer Term
Aids allowed to bring to the exam Limited aids, see the list below and the exam plan/guidelines for further information:
  • Allowed calculators
  • Allowed dictionaries
Make-up exam/re-exam
Same examination form as the ordinary exam
If the number of registered candidates for the make-up examination/re-take examination warrants that it may most appropriately be held as an oral examination, the programme office will inform the students that the make-up examination/re-take examination will be held as an oral examination instead.
Description of the exam procedure
Extra help aids - Notes brought by the examinee: one A4 page of notes
Course content and structure
The goals of this course are two-fold. First, to provide students with an in-depth understanding of key models used in practice in the areas of Investments and Derivatives. The second goal is to provide students with the skills and techniques required to effectively implement models using MS Excel. This course will provide students with hands-on experience in the integration of financial and statistical concepts and techniques in order to construct financial models and the use of these models to analyze problems and develop solutions.
The course will cover models used in the following areas:
  • Option pricing, hedging, and option use in investment strategies
  • Monte Carlo simulation
  • Structured product design and analysis
  • Asset allocation investment strategies
  • Mean-variance portfolio choice
  • Event studies
  • Investment style analysis
The course’s Preliminary Assignment will require students to prepare solutions to a number of short problems. For the Mid-term Assignment students will work in groups to create a hypothetical retail structured product requiring students to design and value the product, quantify its inherent financial risks, and propose a hedging strategy with each group presenting its work to the class. The course will assist students in developing analytical skills and presentation skills.

Class Schedule
Class 1Options: Introduction, Binomial Option Pricing Model
Class 2Modeling Stock Prices, Black-Scholes Option Pricing Model, Structured Products
Class 3Preliminary Assignment, Option Sensitivities and Hedging, MC Simulation
Class held in computer lab.
Class 4Portfolio Insurance, Option-based Investment Strategies
Class 5Mandatory Mid-term Assignment
Class 6Portfolio Insurance Option-based Investment Strategies
Class 7Mean-Variance Optimization, Covariance Estimation
Class 8Beta Estimation, Constrained Portfolio Choice
Class held in computer lab.
Class 9Event Studies
Class 10Style Analysis
Class held in computer lab.
Class 11Comprehensive Review
Schedule with readings referenced
1Options: Introduction
Binomial Option Pricing Model
Text: Chapters 16, 17
Other Reading: CRR
2Modeling Stock Prices
Black-Scholes Option Pricing Model
Structured Products
Text: Chapters 18, 19
Other Reading: Walker, Helberger
3 LABOption Sensitivities and Hedging
Monte Carlo Simulation
Text: Chapters 20, 22, 23
Other Reading: Kritzman 1
4Portfolio Insurance
Option-based Investment Strategies
Text: Chapter 21
Other Reading: Green, Aggarwal
5Midterm Assignments – Presentations
6Asset Allocation Strategies
Text: Chapter 22
Other Reading: Perold, Tezel, Scott
7Mean-Variance Optimization
Covariance Estimation
Text: Chapters 8, 9, 10
Other Reading: Statman
8-LABBeta Estimation
Constrained Portfolio Choice
Text: Chapters 11, 12
Other Reading: Geczy
9Event Studies
Text: Chapter 14
Other Reading: Fama, Henderson
10-LABStyle Analysis
Other Reading: Rekenthaler, Sharpe
11Comprehensive Review 
Teaching methods
Lectures, based when possible on the analysis of real-world situations. In addition, three classes will be held in a computer lab, and will focus on techniques required for effective implementation of models.
Further Information
Preliminary Assignment: To help students get maximum value from ISUP courses, instructors provide a reading or a small number of readings or video clips to be read or viewed before the start of classes with a related task scheduled for class 3 in order to 'jump-start' the learning process.
Expected literature

Required Text: Simon Benninga, Financial Modeling, 4th Ed.2014.  ISBN: 978-0262026284.

Additional Articles: see detailed course outline & article list below.

Last updated on 23-07-2014