Asset Markets

This information is for the 2016/17 session.

Teacher responsible

Prof Christopher Polk and Dr Dong Lou


This course is compulsory on the MSc in Finance (full-time) and MSc in Finance and Private Equity. This course is not available as an outside option.


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

Course content

• Investments and Securities Valuation

• Portfolio choice and performance evaluation

• Derivatives

The aim of the course is to familiarize 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 models 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.


60 hours of lectures in the MT.

Formative coursework

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

Indicative reading

The organisation of topics of the course follows closely the treatment in Berk and DeMarzo, Corporate Finance, 2nd Global Edition, Pearson International, and Bodie, Kane, and Marcus, Investments, 8th Edition, McGraw Hill. Other recommended readings and case studies will be included in a study pack.


Exam (80%, duration: 3 hours) in the main exam period.
In class assessment (10%) and in class assessment (10%) in the MT.

Key facts

Department: Finance

Total students 2015/16: 132

Average class size 2015/16: 62

Controlled access 2015/16: Yes

Value: One Unit

Guidelines for interpreting course guide information