Copenhagen, Denmark

Investments: Financial Markets, Options and Derivatives

when 24 June 2024 - 26 July 2024
language English
duration 5 weeks
credits 7.5 EC
fee DKK 6000

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. 2024: inflation and a relatively high interest rate) with both historical and forward-looking perspective.

The course covers different investment assets and investment instruments including debt (bonds), equity and derivatives, and the cross relation between them. Thus, it gives the students a broad view on the macro economy and financial markets, markets that have developed and adjusted to the new technology available for trading.
In addition, the course covers recent and previous crisis, the correlation (or not?) of financial markets and real economies, effects on savings, risk taking etc.
The role of big investors (hedge funds, saving funds and other institutional investors) is examined, and a question mark on them supporting/endangering financial markets is raised.

The first part of the course covers 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 combines bonds and options, add equity (stocks) and show the link between the three, discussing arbitrage and leverage.
The fourth part uses 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 2024:
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
4. "U.S. policymakers misjudged inflation threat until it was too late", May 30 2022, The Washington Post

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.

Course leader

Carsten Sørensen - Department of Finance

Target group

This is a graduate level course. CBS Summer University courses at Copenhagen Business School is open to all and welcomes domestic and international students as well as professionals.

Course aim

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.

Credits info

7.5 EC
This is a 6-week course. You can combine up to two 6-week courses making 15 ECTS in total.
Find more information on our website.

Fee info

DKK 6000: Tuition fee for Open University students (EU/EEA/Swiss citizenship)
DKK 15000: Tuition fee for non-European students.