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Derivatives

BE-511-1

Included in Study

  • Master's Programme in Business Administration
  • Master's Programme in Business Administration (5 years)

Language of instruction

English.

Recommended pre-requisites

Knowledge of math calculus and basics of probability theory, statistics, and R programming. Builds upon previous courses in "Quantitative Methods", "Financial Econometrics", and "Investments", or equivalent.

Learning outcomes

Upon successful completion of this course the students should be able to

  • Explain option contracts and trading strategies with option
  • Plot and analyze the payoff and profit from derivative trading strategies
  • Retrieve financial prices and estimate the mean return and volatility
  • Describe the stochastic processes and simulate prices of financial assets
  • Master the theoretical foundations of contemporary derivative pricing theory
  • Fully understand the continuous-time Black-Scholes model for option pricing
  • Compute option prices using closed-form solutions
  • Compute implied volatility from market prices of options
  • Compute option prices using binomial trees
  • Compute option prices using Monte-Carlo simulation methods

Course contents

The aim of this course is to provide a detailed treatment of the main theoretical foundations of contemporary derivative pricing theory and give students necessary quantitative skills in computation of prices of various derivative securities.

On the theoretical side, the course presents in-depth coverage of the absence of arbitrage pricing principle, stochastic processes for financial prices, the continuous-time Black-Scholes model, binomial option pricing, and pricing of options using Monte-Carlo simulation methods.

On the practical side, using the open source R statistical programming language, the students learn how to implement the computation of option prices using closed-form solutions, binomial trees, and simulation methods. In addition, the students learn how to simulate prices of financial assets. Last but not least, using real-life data the students learn how to estimate historical volatility and how to compute the implied volatility.

Teaching methods

The course consists of lectures and group-work sessions. Estimated workload is about 200 hours.

Examination requirements

Approved mandatory assignments. Further information is given in Canvas.

Assessment methods and criteria

2 days home examination which constitutes 100% of the final grade. Letter grades.

Evaluation

End of term evaluation.

Admission for external candidates

If a person satisfies prerequisites

Credit reduction

  • BE-419-1 with 2.5 credits.

Choose year for topic

Duration

1 semester

Credits

7.5

Start

Spring

Campus

Kristiansand 

Faculty

School of Business and Law 

Schedule

Reading List

Exam Papers