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2020/2021  KAN-COECO1067U  Derivatives and Risk Management

English Title
Derivatives and Risk Management

Course information

Language English
Course ECTS 7.5 ECTS
Type Mandatory offered as elective
Level Full Degree Master
Duration One Semester
Start time of the course Spring
Timetable Course schedule will be posted at calendar.cbs.dk
Max. participants 50
Study board
Study Board for MSc in Advanced Economics and Finance
Course coordinator
  • Peter Feldhütter - Department of Finance (FI)
Main academic disciplines
  • Finance
  • Economics
Teaching methods
  • Face-to-face teaching
Last updated on 07-04-2021

Relevant links

Learning objectives
Students are required to:
  • Be able to analyze, price, and discuss the use of derivative securities
  • Be able to analyze, discuss, and apply the concept of no-arbitrage and its limitations
  • Be able to analyze, discuss, and apply interest rate risk and credit risk modelling concepts
  • Be able to apply and analyze Value-at-Risk based risk measures
  • Be able to analyze and discuss financial risk management in financial institutions
Course prerequisites
This is a mandatory course for the MSc in Advanced Economics and Finance. It is assumed that students have knowledge similar to the entry requirements for the MSc in Advanced Economics and Finance. For spring courses knowledge similar to the content of the 1st-semester courses is assumed as well. The courses have 45 contact hours (lectures and exercises), and there is a high level of interaction between lecturer and students, and in general a high work load.

To sign up send a 1-page motivational letter, a 1-page CV, and a grade transcript to ily.stu@cbs.dk before the registration deadline for elective courses. You may find the registration deadlines on my.cbs.dk ( https:/​/​studentcbs.sharepoint.com/​graduate/​pages/​registration-for-electives.aspx ).

Please also remember to sign up through the online registration.
Prerequisites for registering for the exam (activities during the teaching period)
Number of compulsory activities which must be approved (see s. 13 of the Programme Regulations): 2
Compulsory home assignments
The students must hand in 2 home assignments during the course and must pass them both on an approved/not approved basis before the final exam. The home assignments are made in groups of 2-4 students.
If a student - due to documented illness or failed attempts - does not pass both assignments, the student will be given a final chance to retake this part of the course by handing in a new assignment prior to the final exam.
Derivatives and Risk Management:
Exam ECTS 7,5
Examination form Oral exam
Individual or group exam Individual exam
Duration 20 min. per student, including examiners' discussion of grade, and informing plus explaining the grade
Preparation time No preparation
Grading scale 7-point grading scale
Examiner(s) Internal examiner and external examiner
Exam period Summer
Make-up exam/re-exam
Same examination form as the ordinary exam
Description of the exam procedure

The examination has two parts:
Part 1 (10 minutes): Three weeks before the exam, the students are given 6-8 topics for which they have to prepare a 10 minute presentation. At the beginning of the examination, the student chooses one of the topics at random and immediately thereafter gives the presentation. Only the prepared presentation is available to the student during the exam (no other notes, course material or exam aids of any form).
Part 2 (8-10 minutes): The student is asked questions in parts of the curriculum different from the part covered in part 1. The implementation exercises given during the semester are part of the curriculum and can be made a part of the examination.
Purpose of the exam: The exam tests the student’s ability to select important aspects of a topic and to present these aspects clearly and concisely. This ability is central to almost any career that the students would want to pursue in the future.

Course content, structure and pedagogical approach

The purpose of this course is to give students a thorough understanding of derivatives, models for pricing derivatives, and to understand their role in financial risk management. We cover the Black-Scholes-Merton option pricing model and some alternatives. We give an overview of fixed income securities and discuss bond pricing, the term structure of interest rates and term structure derivatives, including prepayment options in mortgage-backed securities. Credit risk and credit derivatives are also covered, as is Value-at-Risk (VaR) and related risk measures. The course will present numerical techniques frequently applied in derivatives pricing problems. The course is a fundamental quantitative finance course with wide applications in advanced financial institutions. It builds heavily on the first semester course in Asset Pricing Theory and to some extent on Corporate Finance.

Description of the teaching methods
The format of the course is based on the following elements:
• Class lectures devoted to the fundamental theoretical issues
• Class exercises
• Two written assignments made in groups.
Feedback during the teaching period
Students will receive feedback when asking questions and when engaging in discussions during the lectures. The office hours during the teaching period provide a further opportunity for asking more in-depth questions and getting feedback. Feedback will also be provided for the two mandatory home assignments (feedback to the group of three students).
Student workload
Teaching 45 hours
Exam 25 hours
Preparation 136 hours
Expected literature


John C. Hull, "Options, Futures, and Other Derivatives", 2018 (main textbokk for the course).
John C. Hull, “Risk Management and Financial Institutions”, 2015 (selected chapters).
Additional literature TBA before the course starts

Last updated on 07-04-2021