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2023/2024  BA-BHAAV4491U  Financial derivatives and their applications

English Title
Financial derivatives and their applications

Course information
Language English
Course ECTS 7.5 ECTS
Type Elective
Level Bachelor
Duration One Quarter
Start time of the course Third Quarter
Timetable Course schedule will be posted at calendar.cbs.dk
Max. participants 40
Study board
Study Board for BSc in Economics and Business Administration
Course coordinator
  • Rasmus Tangsgaard Varneskov - Department of Finance (FI)
Main academic disciplines
  • Finance
Teaching methods
  • Face-to-face teaching
Last updated on 08-02-2023

Relevant links
Learning objectives
The course will provide students with an understanding of how financial derivative markets function and a basic toolbox for pricing and hedging derivatives. The toolbox will combine finance theory with examples and practical exercises.

By the end of the course, the students should have a broad understanding of the derivative contracts discussed in the course. This means that they should be able to:
  • Analyze the payoff structure of various derivative contracts (futures, forwards, options) for different underlying securities (e.g., stocks financial indices, foreign exchange, commodities)
  • Price different types of derivatives contracts using appropriate methods
  • Construct and evaluate derivatives strategies for risk management purposes
  • Replicate non-standard payoff profiles by taking active positions in financial markets
  • Identify the associated risks involved with active positions in financial markets
Course prerequisites
Please note that the elective course is reserved for HA students, who wish to write their bachelor project in this elective course.
Examination
Financial derivatives and their applications:
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 Spring
Aids Limited aids, see the list below:
The student is allowed to bring
  • An approved calculator. Only the models HP10bll+ or Texas BA ll Plus are allowed (both models are non-programmable, financial calculators).
  • Language dictionaries in paper format
The student will have access to
  • basic IT application package
Make-up exam/re-exam
Same examination form as the ordinary exam
The number of registered candidates for the make-up examination/re-take examination may warrant that it most appropriately be held as an oral examination. The programme office will inform the students if the make-up examination/re-take examination instead is held as an oral examination including a second examiner or external examiner.
Course content, structure and pedagogical approach

This course deals with both theory and application of derivatives markets and their uses in portfolio allocation and risk management.The students will learn the fundamental concepts of derivatives pricing and hedging and apply them to a variety of financial instruments.The following areas are covered in the course: 

  • The pricing of futures, forwards and swaps and the use of these instruments for hedging.
  • Basic properties of option contracts, payoff diagrams, trading strategies, and the put-call parity.
  • Applications of options in corporate hedging and compensation packages
  • The (multi period) binominal models.
  • The Black-Scholes model. Replicating portfolios and risk-adjusted valuation. Greeks and hedging. 
  • Dividends. Currency options. American options.
  • Volatility estimates, implied and historical volatility.
Description of the teaching methods
The course consists of lectures where the basic concepts are introduced and explained and exercise classes where the students have the possibility to gain a deeper understanding of the concepts as well as practical knowledge of the methods presented in the lectures.

Exercises and additional materials for discussion for the exercise classes will be made available in advance and the students are expected to actively participate in class.
Feedback during the teaching period
Office hours for feedback
Student workload
Student workload Preparation / exam 170 hours
Lectures 38 hours
Expected literature

The following textbook is indicative and may be changed and/or expanded with academic articles and cases:

Hull, J: Options, Futures, and other Derivatives. 11th Edition. Prentice-Hall.
Last updated on 08-02-2023