ECON4520 – Finance Theory 2: Option theory with applications
Course description
Course content
Topics include:
- Theory of pricing of derivative assets, such as forward and futures contracts and in particular options
- Applications to real options, i.e., multiperiod investment problems under uncertainty ("compensation") to employees
- Some knowledge of actual options markets
Learning outcome
The basics of absence-of-arbitrage pricing models, including the ability to evaluate when, how, and to what extent the models are applicable. Binomial trees in discrete time as well as diffusions in continuous time. Ability to formulate a non-financial investment problem as a real options problem.
Admission
Students who are admitted to study programmes at UiO must each semester register which courses and exams they wish to sign up for in Studentweb.
If you are not already enrolled as a student at UiO, please see our information about admission requirements and procedures.
Prerequisites
Formal prerequisite knowledge
Bachelor's degree in Economics, or equivalent
Recommended previous knowledge
ECON3120 – Mathematics 2: Calculus and Linear Algebra / ECON4120 – Mathematics 2: Calculus and Linear Algebra (could be taken in parallel with this course, at the latest), ECON4515 – Finance Theory 1: Portfolio choice and equilibrium models (discontinued). Students who have not taken ECON4515, should at least have background in microeconomics from [ECON3210 / ECON4210 – Decisions, markets and incentives (discontinued), or ECON4140 – Mathematics 3: Differential Equations, Static and Dynamic Optimization, or take one of these in parallel.
Overlapping courses
5 credits overlap with MAT2700 – Introduction to mathematical finance and investment theory (continued)
Teaching
Lectures: 2 hours per week throughout the semester.
Seminars: 2 hours per week through parts of the semester.
There might occur weeks exempt from teaching (where students are expected to do compulsory term paper).
1 compulsory term paper to hand in, with one extra opportunity for those who fail.
Access to teaching
A student who has had the compulsory term paper approved, is not entitled to hand in the term paper again. A student who has previously been admitted to the course, but who has not completed the compulsory term paper, is entitled to repeat the course, contingent on available capacity.
Examination
A 3-hour written school exam. Students are not allowed to present themselves to the written school exam if the 3 compulsory term papers are not approved.
When the compulsory term papers are approved, the result will be registered. Students can retake the written exam later without handing in compulsory term papers again.
Examination support material
Resources allowed: A calculator is allowed.
Language of examination
The problem set will be given in English. Answers can be given in Norwegian, Swedish, Danish or in English. See § 5.4 in Regulations governing studies and examinations at the University of Oslo.
Grading scale
Grades are awarded on a scale from A to F, where A is the best grade and F is a fail. Read more about the grading system.
Explanations and appeals
Resit an examination
Students who might wish to retake the exam later, are not guaranteed that the course is ever repeated with a similar reading list, nor that the exam arrangement will be the same.
Withdrawal from an examination
It is possible to take the exam up to 3 times. If you withdraw from the exam after the deadline or during the exam, this will be counted as an examination attempt.
Special examination arrangements
Application form, deadline and requirements for special examination arrangements.