FM423E     
Asset Markets

This information is for the 2023/24 session.

Teacher responsible

Dr Georgy Chabakauri and Dr Igor Makarov

Availability

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

Pre-requisites

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.

Teaching

30 hours of lectures in the AT. 30 hours of lectures in the WT.

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.

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, 5th Edition, Pearson International, and Bodie, Kane and Marcus, Investments, 12th Edition, McGraw Hill. Other recommended readings and case studies will be included in a study pack.

Assessment

Continuous assessment (100%) in the AT and WT.

Key facts

Department: Finance

Total students 2022/23: 39

Average class size 2022/23: 39

Controlled access 2022/23: Yes

Value: One Unit

Guidelines for interpreting course guide information

Course selection videos

Some departments have produced short videos to introduce their courses. Please refer to the course selection videos index page for further information.