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2022/2023  KAN-CCMVI2067U  Investments: Financial Markets, Options and Derivatives

English Title
Investments: Financial Markets, Options and Derivatives

Course information
Language English
Course ECTS 7.5 ECTS
Type Elective
Level Full Degree Master
Duration Summer
Start time of the course Summer
Timetable Course schedule will be posted at calendar.cbs.dk
Max. participants 60
Study board
Study Board for MSc in Economics and Business Administration
Course coordinator
  • Carsten Sørensen - Department of Finance (FI)
For academic questions related to the course, please contact course instructor Shlomi Ben Yehuda (sby.fi@cbs.dk).
Main academic disciplines
  • Finance
Teaching methods
  • Face-to-face teaching
Last updated on 16-11-2022

Relevant links
Learning objectives
To achieve the grade 12, students should meet the following learning objectives with no or only minor mistakes or errors:
  • Apply the aspects of fixed income assets on bond's pricing and its risk sensitivity. Analyze and explain the effect of bankruptcy risk on the yield to maturity of the bond.
  • Implement the use of leverage in common financial problems, and analyze the effects of using leverage on risk and return.
  • Analyze option pricing (theory and practice) using the same models used in most financial firms.
  • Describe the process of financial markets movements and the role derivatives play in stability and instability of financial markets.
  • Identify hidden derivatives in real "simple life" agreements and deals.
  • Most important: handle portfolio management based on understanding the characteristics of investments.
Course prerequisites
Completed social science Bachelor. Fundamentals in economics and finance
Examination
Investments: Financial Markets, Options and Derivatives:
Exam ECTS 7,5
Examination form Written sit-in exam on CBS' computers
Individual or group exam Individual exam
Assignment type Written assignment
Duration 4 hours
Grading scale 7-point grading scale
Examiner(s) One internal examiner
Exam period Summer, Exam schedules are available on https:/​/​www.cbs.dk/​uddannelse/​international-summer-university-programme-isup/​courses-and-exams
Aids Limited aids, see the list below:
The student is allowed to bring
  • Any calculator
  • Language dictionaries in paper format
The student will have access to
  • Advanced IT application package
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.
1st retake exam: 4 hour written sit-in exam, new exam question.
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.

Exam form for 3rd attempt (2nd retake): The second retake is always an online oral exam (20 minutes online oral exam with no preparation time) with one internal examiner and an internal co-examiner.
Course content, structure and pedagogical approach

This course is both theoretical and practical. No background in financial markets or knowledge related to investments is required. We analyze the current situation in the financial markets (i.e. 2023: inflation and a relatively higher interest rate) with a historical perspective, and forward looking.

The course will cover the different investment assets and investment instruments including debt (bonds), equity and derivatives, with the cross relation between them. This will give the students a broad view on financial markets and the macro economy, markets that have developed and adjusted to the new technology available for trading.
The course will cover recent and previous crisis, the correlation (or not?) of  financial markets with real economies, effects on savings, risk taking etc.
The role of big investors (hedge funds, saving funds and othe institutional investors) will be examined, and a question mark on them supporting/endangering financial markets will be raised.
 
The first part of the course will cover the debt market, including the recent developments in the interest rates and central banks' decisions.
In the second part we learn about options (and other derivatives) and emphasize the relationship between risk and return.
The third part will combine bonds and options, add equity (stocks) and show the link between the three, discussing arbitrage and leverage.
The fourth part will use the previous material to explain the 2008 crisis, the recent inflation, the hedge-fund industry, commodities prices, forex markets, employee options, hedging, etc.
 
 
Preliminary assignment:
"Low interest rate:  the impact on investments and long term savings"
Please read the following short articles; think of the main points raised in these articles in the perspective of 2023:
1. "The long-term impact of low rates" , September 9 2012, Financial Times
2. "Why low interest rates are now doing more harm than good" , September 2 2016, The Telegraph
3. “Low interest rates fuel financial risk-taking, IMF warns”, October 16 2019, Financial Times
 

Class 1&2. Bonds: structure, YTM (yield to maturity), duration, risk, yield curve and spreads, nominal real and inflation; Hull chapter 4,6.


Class 3. Options: fundamentals, definition, graphical demonstration and arbitrage; Hull chapter 9.


Class 4&5. Strategies, put call parity (PCP), hedging and arbitrage; Hull chapter 9,10.

 

Class 6&7. The Binomial model. contingent claims. Demonstration: the option value of stocks, the effect on the yield to maturity; Hull chapter 11.

 

Feedback activity: an optional "take home exam"


Class 8&9. B&S model, the Greeks, evaluating employee options, volatility and the volatility index (VIX, the fear index); Hull chapter 13,17.

 

Class 10&11. Futures, commodity markets, forex markets. Employee options. Debt, leverage, derivatives and recent crisis. The role of big investors: hedge funds, mutual funds, algorithmic trading and stability/instability; Hull chapter 5,14.

 
Description of the teaching methods
Tests, lecture notes, case studies, in class examples, worksheets, excel spreadsheets, and articles from financial press, which will form the basis for of the class discussions.
Feedback during the teaching period
An optional "take home exam" based on the material covered so far.
Student workload
Preliminary assignment 20 hours
Classroom attendance 33 hours
Preparation 126 hours
Feedback activity 7 hours
Examination 20 hours
Further Information

Ordinary 6 weeks course.

 

Preliminary Assignment:

The course coordinator uploads Preliminary Assignment on Canvas at the end of May. It is expected that students participate as it will be included in the final exam, but the assignment is without independent assessment & grading.

 

Course and exam timetable is/will be available on https://www.cbs.dk/uddannelse/international-summer-university-programme-isup/courses-and-exams

 

We reserve the right to cancel the course if we do not get enough applications. This will be communicated on https://www.cbs.dk/uddannelse/international-summer-university-programme-isup/courses-and-exams in start March.
Expected literature

Mandatory readings:

 

John C. Hull, "Options Futures and other Derivatives", 7th-10th edition


"The long-term impact of low rates" , September 9 2012, Financial Times
 
"Why low interest rates are now doing more harm than good" , September 2 2016, The Telegraph
 
"Do Hedge Fund Managers Misreport Returns? Evidence from the Pooled Distribution", Boolen and Pool, 2009, the Journal of Finance

 

"Good Timing: CEO Stock Option Awards and Company News Announcements", Yermack, 1997, Journal of Finance

 
"Mutual fund Performance", Sharp, 1966, the Journal of Business
 
"Mutual fund Performance", Fama and French, 2008, the Journal of Finance

 

"Do Managers Withhold Bad News?", Kothari Et al.,
2008, Journal of Accounting Research
 
"Boys will be Boys: Gender, Overconfidence and Common Stock Investments", Barber and Odean, 2001, the Quarterly Journal of Economics

 

Additional relevant readings:

 

Benninga, Mofkadi, "Financial Modeling" 5th edition, 2022

 

"Does the Stock Market Overreact?", De Bondt and Thaler, 1985, the Journal of Finance
 
"Pound's flash crash was amplified by inexperienced traders'", January 13 2017, the Guardian
 
"Bonuses don't have that much to do with performance", June 3 2015, The Telegraph
 
"Here’s all the money in the world, in one chart", January 29, 2016, MarketWatch
 
“Low interest rates fuel financial risk-taking, IMF warns”, October 16 2019, Financial Times

 

 
Last updated on 16-11-2022