FM305      Half Unit
Advanced Financial Economics

This information is for the 2020/21 session.

Teacher responsible

Prof Ian Martin and Prof Dimitrios Vayanos


This course is compulsory on the BSc in Finance. This course is not available as an outside option nor to General Course students.


 Students must have completed FM213 Principles of Finance.

Course content

This course will present modern theories of financial markets and asset valuation. The first part of the course, taught by Ian Martin, will cover the principle of no arbitrage, state prices and the stochastic discount factor, utility functions and portfolio choice, and equilibrium pricing and risk-neutral pricing. It will also apply these tools to forecast market returns. The second part of the course, taught by Dimitri Vayanos, will build on this material and develop additional tools to explore the effects of frictions in financial markets, such as asymmetric information, costs of search and market participation, leverage constraints and delegated portfolio management.


33 hours of seminars in the MT.

This course is taught in the interactive lecturing format. There is no distinction between lectures and classes/seminars; there are “sessions” only, and the pedagogical approach in each session is interactive.

Indicative reading

Teaching notes will be provided


In-class assessment (30%), in-class assessment (60%) and class participation (10%) in the MT.

Midterm exam (two questions from Prof Martin) and final in-class exam (one question from Prof Martin, three questions from Prof Vayanos).

Important information in response to COVID-19

Please note that during 2020/21 academic year some variation to teaching and learning activities may be required to respond to changes in public health advice and/or to account for the situation of students in attendance on campus and those studying online during the early part of the academic year. For assessment, this may involve changes to mode of delivery and/or the format or weighting of assessments. Changes will only be made if required and students will be notified about any changes to teaching or assessment plans at the earliest opportunity.

Key facts

Department: Finance

Total students 2019/20: 34

Average class size 2019/20: 35

Capped 2019/20: No

Value: Half Unit

Guidelines for interpreting course guide information

Personal development skills

  • Problem solving
  • Application of information skills
  • Application of numeracy skills
  • Commercial awareness