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2023/2024  KAN-COECO1067U  Derivatives and Risk Management

English Title
Derivatives and Risk Management

Course information

Language English
Course ECTS 7.5 ECTS
Type Mandatory (also 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
  • Blended learning
Last updated on 31-01-2023

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 section 13 of the Programme Regulations): 1
Compulsory home assignments
The students must hand in 1 home assignment during the course and must pass it on an approved/not approved basis before the final exam. The home assignment is made in groups of 2-4 students.
If a student - due to documented illness or failed attempts - does not pass the assignment, 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 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
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
  • Advanced 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

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
• One written assignment 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 mandatory home assignment.
Student workload
Teaching 45 hours
Exam 25 hours
Preparation 136 hours
Expected literature


John C. Hull, “Options, Futures, and Other Derivatives”, 11th global ed., Pearson, 2022. (Hull) (main textbook for the course).
John C. Hull, “Risk Management and Financial Institutions”, 2015 (selected chapters).
Additional literature TBA

Last updated on 31-01-2023