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Derivatives and Risk Management in Energy and Commodity Markets MSB210

Derivatives have a very long history, the first derivatives contracts dating back to ancient times. Today, trillions of dollars worth of financial derivatives contracts are traded world-wide. The development of a pricing formula for options (The Black Scholes formula) was the start of a revolution in finance. The result of this revolution has been a proliferation of market places for trading derivative securities, such as futures and options, and a continued expansion in the risks one can hedge using derivatives. This course is an advanced course in derivatives, and will cover topics such as option pricing, risk management and empirical studies (research) of derivatives.

Course description for study year 2021-2022. Please note that changes may occur.

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Semester tution start


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This course covers the valuation and use of options and derivatives for use in the financial, as well as energy and commodities industries. Options and other derivatives are a very important class of financial instruments. Derivatives are financial contracts on other assets (i.e. what we call the "underlying asset") such as the price of a stock, the price of Brent crude oil or the price of natural gas. The values of derivatives such as options are driven by the behavior of its underlying asset. An option to buy a shipment of crude oil in the future is very much affected by the volatility of the price of oil.

The course will provide the theoretical foundation for pricing derivatives and how it differs from standard financial valuation models. Various pricing models will be covered, from binomial models to the Black-Scholes model to Monte Carlo simulation.  We will also cover how derivatives can be used as risk management tools. Empirical studies of derivatives will also be an important part of the course.

Learning outcome

After successful completion of the course the student will:


  • have basic theoretical knowledge in option pricing theory and models
  • have the ability to apply a variety of option pricing models such as binomial and trinomial trees, analytical solutions such as the Black-Scholes model and Monte Carlo simulation
  • understand the role of risk management tools for hedging market risk exposure, e.g. know how to hedge the price of crude oil
  • have the ability to carry out empirical (econometric) studies on derivatives


  • be able to price financial options and other derivatives such as forward and futures contracts
  • be able to identify and price structured products with embedded options
  • be able to apply numerical methods such as Monte Carlo simulation to price derivatives
  • be able to estimate a firm's Value at Risk
Required prerequisite knowledge
Recommended prerequisites

The students taking this course will benefit from having a basic understanding of:

- Finance theory

- Microeconomics

- Econometrics

Form of assessment Weight Duration Marks Aid
Groupwork assignment 1/1 Letter grades

No re-sit.

Coursework requirements
Mandatory attendance 80%, Research proposal

80% attendence at lectures/seminars/workshops is mandatory. To be allowed to take the exam, students need to pass a mandatory attendance requirement.

The students need to hand in, and get approved, research proposals for their research project within certain deadlines. The deadlines will be announced at the beginning of the course.

Course teacher(s)
Course coordinator: Bård Misund
Study Program Director: Yuko Onozaka
Method of work

The course is delivered as a combination of lectures/seminars and extensive coursework (research projects). The students will work in groups and deliver a series of research reports throughout the semester. All reports need a passing grade.

The course will be delivered in English. The expected workload for the students is 300 hours:

50 hours lectures/seminars/workshops/meetings

250 hours self-study and groupwork

Open for
Master in Accounting and Auditing Risk Management, Master's Degree Programme (Master i teknologi/siviling.) Business Administration - Master of Science Business Administration - Master of Science (5 years)
Course assessment
Students will have the opportunity to give feedback on the course first in an early dialogue, and then in a written course evaluation at the end of the course.
Overlapping courses
Course Reduction (SP)
Derivatives and Risk Management in Energy and Commodity Markets (MØA210) 10
The syllabus can be found in Leganto