Financial Modelling and Derivatives

Vrije Universiteit Amsterdam

Course Description

  • Course Name

    Financial Modelling and Derivatives

  • Host University

    Vrije Universiteit Amsterdam

  • Location

    Amsterdam, The Netherlands

  • Area of Study


  • Language Level

    Taught In English

  • Course Level Recommendations


    ISA offers course level recommendations in an effort to facilitate the determination of course levels by credential evaluators.We advice each institution to have their own credentials evaluator make the final decision regrading course levels.

    Hours & Credits

  • ECTS Credits

  • Recommended U.S. Semester Credits
  • Recommended U.S. Quarter Units
  • Overview

    In this course you will learn about financial modelling of risk and financial derivatives. In the financial modelling module, the central concept is the relationship between risk and return on financial assets (Knowledge).
    The goal of this part of the course is to gain insight into the risk associated with financial portfolios and investments and to be able to calculate/estimate such risk on the basis of historical data. Furthermore, other goal is to learn how to construct portfolios on the basis of mean-variance optimization and how to benefit from diversification possibilities. Finally, another goal is to learn how to compute expected returns on investments on the basis of the Capital Asset Pricing Model and multifactor models (Quantitative skills).
    In the derivatives module, the goal is to gain insight into various financial derivatives such as futures and options, their properties, valuation and risks associated with them (Knowledge).
    Another goal is to learn how these derivatives can be used to hedge financial risks (Quantitative skills).
    Upon accomplishing these goals, you will gain new academic, research and quantitative skills, as well as develop your professional knowledge in the area of financial risk and derivatives. Furthermore, by illustrating the concepts with examples of portfolios, investments and hedging problems provided by financial institutions, we will bridge the gap between theory and practice, enabling you to translate theoretical concepts into practical applications (Link to practice).

    Central topics in financial modeling that will be discussed are:
    - measures of risk in financial markets: variance and volatility of returns;
    - trade-off between risk and return;
    - estimation of average return and volatility;
    - concepts of covariance and correlation; their estimation;
    - risk and return of portfolios;
    - diversification;
    - universal risk measures: Value-at-Risk and Expected Shortfall;
    - concept of efficient portfolio. Markowitz model;
    - CAPM;
    - risk premium and beta;
    - multifactor models of risk. Central topics in the part on derivatives that will be discussed are:
    - types and characteristics of financial derivatives;
    - use of derivatives in risk hedging;
    - options: determining option price with the help of the binomial tree;
    - sensitivities of options (Greeks);
    - Black-Scholes model for option pricing and its assumptions;
    - delta hedging of options;
    - implied volatilities and volatility smiles;

    Lectures. Tutorials.

    Written midterm test, written exam and computer assignment.

    Finance I and Quantitative Research Methods I and II

Course Disclaimer

Courses and course hours of instruction are subject to change.

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