FM412      Half Unit
Quantitative Security Analysis

This information is for the 2017/18 session.

Teacher responsible

Prof Christopher Polk

Dr Vasant Naik


This course is available on the MSc in Accounting and Finance, MSc in Finance (full-time), MSc in Finance (part-time), MSc in Finance and Economics, MSc in Finance and Private Equity and MSc in Risk and Finance. This course is not available as an outside option.

This course is available to the MSc in Accounting and Finance, with permission from the Department of Finance, should capacity allow.



Course content

The theoretical framework underlying the course will be Merton’s model of viewing corporate securities as contingent claims on a firm’s assets. We will use information in financial statements and macro-economic variables to come up with the inputs into Merton-type models. The course will involve lectures, cases, and a project. The course will be structured around the following topics:

1. Basic Analysis of Financial Statements

2. Merton’s Framework of Corporate Securities as Contingent Claims on a Firm’s assets

3. Valuation of Assets of Firms

a. Valuation of assets-in-place

b. Valuing growth and growth options

4. Valuation of Equity and Debt of Levered Firms

5. Valuation of Financial Institutions

6. Valuing Distressed Debt


30 hours of seminars in the LT.

Formative coursework

Students will be expected to produce 3 case studies in the LT.

Indicative reading


1. Greenwald, B, Kahn, J., P. Sonkin, M. van Biema, Value Investing: From Graham to Buffett and Beyond, Wiley Finance, 2004.

Academic Articles:

1. Berk, J., R. Green and V. Naik, “Optimal Investments, Growth Options and  Security Returns,” Journal of Finance, 1999.

2. Berk, J. R. Green, and V. Naik, “Valuation of New Ventures,” Review of Financial Studies, 2004.

3. Black, F. and J.  Cox, “Valuing Corporate Securities: Some Effects of Bond Indenture Provisions,” Journal of Finance, 1976.

4. Gamba, A., and A. Triantis, “The Value of Financial Flexibility,” Journal of Finance, 2008.

5. Collin-Dufresne, P., and R. Goldstein, “The Determinants of Credit Spread Changes,” Journal of Finance, 2001.

6. Merton, R., “On the Pricing of Corporate Debt: The Risk Structure of Interest Rates,” Journal of Finance, 1974.

7. Novy-Marx, R., “The Other Side of Value: The Gross Profitability Premium,” Journal of Financial Economics, 2013.

8. Piotroski, J.D., “Value Investing: The Use of Financial Statement Information to Separate Winners from Losers,” Journal of Accounting Research, 2000.

9. Ritter, J., “Economic Growth and Equity Returns,” Pacific-Basin Finance Journal, 2005.

10. Shumway, T., and B. Sharath, “Forecasting Default with the Merton Distance to Default Model,” Review of Financial  Studies, 2008.


Project (50%) in the LT.
In class assessment (50%).

Key facts

Department: Finance

Total students 2016/17: Unavailable

Average class size 2016/17: Unavailable

Controlled access 2016/17: No

Value: Half Unit

Guidelines for interpreting course guide information

Personal development skills

  • Leadership
  • Self-management
  • Team working
  • Problem solving
  • Application of information skills
  • Communication
  • Application of numeracy skills
  • Commercial awareness
  • Specialist skills