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2024/2025  KAN-CFIAO1007U  Derivatives and Fixed Income

English Title
Derivatives and Fixed Income

Course information
Language English
Course ECTS 7.5 ECTS
Type Mandatory
Level Full Degree Master
Duration One Semester
Start time of the course Spring
Timetable Course schedule will be posted at calendar.cbs.dk
Study board
Study Board for cand.merc. and FIN
Course coordinator
  • Peter Feldhütter - Department of Finance (FI)
Main academic disciplines
  • Finance
Teaching methods
  • Blended learning
Last updated on 24-05-2024

Relevant links
Learning objectives
  • understand and explain the payoff and risk properties of the main types of derivative securities
  • understand and explain how derivative securities can be used for risk management
  • understand, explain, and apply the central methods and models for the pricing of derivative securities
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
Each student must get 1 out of 2 assignments approved in order to attend the ordinary exam. The students work in groups of 3 or 4. For each assignment, the group hands in a report (their answers to the questions stated in the assignment) of at most 3 pages per student.

Students will not have extra opportunities to get the required number of compulsory activities approved prior to the ordinary exam. If a student has not received approval of the required number of compulsory activities or has been ill, the student cannot participate in the ordinary exam.
If a student prior to the retake is still missing approval for the required number of compulsory activities and meets the pre-conditions set out in the program regulations, an extra assignment is possible.

The extra assignment is a 10 page home assignment that will cover the required number of compulsory activities. If approved, the student will be able to attend retake.
Examination
Derivatives and Fixed Income:
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
  • 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 course deals with the properties, the applications, and the pricing of derivative securities. More specifically, the topics include

  • general properties, applications, and pricing results for forwards and futures
  • option strategies
  • review and refinements of binomial models
  • introduction to continuous-time option pricing: Brownian Motion, Itô's Lemma, Black-Scholes PDE
  • the Black-Scholes option pricing model
  • extensions of the Black-Scholes model such as the Heston model 
  • the Black 76 model for options on forwards/futures
  • hedging strategies and the "Greeks"
  • volatility smiles
  • tree-based interest rate models
  • continuous-time interest rate models
  • pricing of interest rate derivatives (such as bonds, swaps, futures, options on bonds, caps, floors, swaptions)
  • Monte Carlo simulation

Excel is used wherever relevant.
Description of the teaching methods
Pre-recorded videos, lectures, and exercises
Feedback during the teaching period
Solutions to a wide range of exercises are discussed in the exercise sessions and this gives the students a tool to check their ability to solve relevant problems.
Student workload
Lectures 33 hours
Preparation for lectures 66 hours
Exercise classes 14 hours
Preparation for exercise classes 70 hours
Assignment 8 hours
Final preparation for exam 11 hours
Exam 4 hours
Expected literature

“Options, Futures, and Other Derivatives” by John Hull, 11th global ed., 2022, Pearson.
Last updated on 24-05-2024