2020/2021 KANCMECV1701U Fixed Income Derivatives: Risk Management and Financial Institutions
English Title  
Fixed Income Derivatives: Risk Management and Financial Institutions 
Course information 

Language  English 
Course ECTS  7.5 ECTS 
Type  Elective 
Level  Full Degree Master 
Duration  One Semester 
Start time of the course  Autumn 
Timetable  Course schedule will be posted at calendar.cbs.dk 
Max. participants  80 
Study board 
Study Board for HA/cand.merc. i erhvervsøkonomi og matematik,
MSc

Course coordinator  


Main academic disciplines  


Teaching methods  


Last updated on 01072020 
Relevant links 
Learning objectives  


Course prerequisites  
The course is not intended to be an introductory
course. Students are assumed to be familiar with basic fixed income
concepts (such as yield curves, duration, convexity) and basic
BlackScholes theory (e.g. from “Corporate Finance and Incentives”
or “Pricing Financial Assets”), at least at the level of the Hull
textbook ("Options, futures, and other derivatives").
Furthermore, VBA programming will be part of the course. While no prior knowledge of VBA is assumed, students are expected to have some basic programming experience and some familiarity with Excel is a definite plus. In exchange for a reading list that is short in terms of the page count, the lectures will be dense and students are expected to devote time over the course of the semester to understand and implement pricing functions in VBA/Excel. To facilitate this, lectures will address not only the relevant theory but also include computer sessions that address practical issues. 

Examination  


Course content, structure and pedagogical approach  
Over the last decades there has been an explosive growth in the use of fixed income derivatives. Derivatives are now routinely used not only by financial institutions but also by many private and public entities. At the same time, the widespread use of derivatives is also blamed for playing a destabilizing role during the financial crisis.
The course will give students a thorough understanding of fixed income derivatives, focusing on how they are used and traded in practice. Fixed income derivatives  such as interest rate swaps, FX and crosscurrency swaps, swaptions and credit default swaps  are liquidly traded instruments and they underpin much of the financing activity of the corporate and financial sector.
Using the quantitative tools from the industry, students will learn how to characterize and decompose financial risks and how derivatives can be used to hedge or take risk. As such the course is relevant for students interested in pursuing careers in investment banking and capital markets.
The lectures will focus on how pricing models are used and how derivatives are traded and riskmanaged in practice and considerable time will be spent on various market standards, trading terminology and so on. We will mainly cover liquid products that are used by many market participants – how they work, how they are priced and how the risk is quantified and hedged.
In parallel with the lectures, students will spend considerable time with pricing and risk management tools in Excel/VBA. By the end of the course, students will have a small pricing library that is reasonably close to market standards. 

Description of the teaching methods  
Lectures and computer sessions.  
Feedback during the teaching period  
There will be a number of home assignments that the students will have the possibility to discuss in class.  
Student workload  


Expected literature  
Linderstrøm, M. D. (2010). “Fixed income derivatives.” Lecture Notes, University of Copenhagen.
Lecture slides and additional lecture notes.
Hagan, P. et al (2002). “Managing smile risk”. Wilmott Magazine (2002) er. 