Professor Dimitri Vayanos, OLD 3.41, Dr Kathy Yuan, OLD M3.05 and Dr Rohit Rahi, OLD 3.43 (Evening) / Professor Mikhail Chernov, OLD M3.08, Dr Konstantinos Zachariadis, OLD M3.02, Dr Kathy Yuan and Dr Peter Kondor (Day-time).

For MSc Finance (part-time) and MSc Finance (full-time), MSc Finance and Private Equity students only. All teaching is closed to anyone not registered on the MSc Finance programmes.

Aimed at people with a good undergraduate degree and good quantitative skills, with some knowledge of economics.

The aim of the course is to familiarise students with the workings of financial markets, and equip them with the fundamental tools of asset valuation.

The course will focus on the three main asset classes - fixed income, stocks, and derivatives - giving a unified perspective of modern valuation methods. The starting point will be the present value formula. The course will then proceed to fixed-income securities, focusing mainly on government bonds. These will be valued off the term structure of interest rates, using the present value formula. The connection with the principle of no-arbitrage will be emphasized. The course will then move to stocks, starting with portfolio theory and then deriving the relation between risk and return (CAPM). The CAPM will provide a risk-adjusted discount rate that will be used to discount stocks' cash flows with the present value formula. Alternative pricing models such as the APT and multi-factor will also be covered, and the models will be applied to issues of asset allocation and portfolio selection. The last topic will be derivatives, especially futures and options. After familiarizing students with the use of derivatives, the course will cover the main valuation methods (binomial model, Black-Scholes) emphasizing again the principle of no-arbitrage.

40 hours of lectures and 20 hours of classes.  MSc Finance (part-time): taught MT, LT and ST (evenings).  MSc Finance (full-time): taught MT (daytime).

Regular classworks will be completed, handed in and marked as part of formative assessment for this course.

The organisation of topics of the course follows closely the treatment in Berk and DeMarzo, Corporate Finance, Pearson International ed., Addison Wesley, and Bodie, Kane, and Marcus, Investments, 8th ed., Irwin. Other recommended readings and case studies will be included in a study pack.

A three-hour examination in the ST (80%) and one homework assignment (10%) and one in-class assignment (10%).