Dr Paula Lopes

This course is compulsory on the BSc in Accounting and Finance. This course is available on the BSc in Data Science, BSc in Econometrics and Mathematical Economics, BSc in Economics, BSc in Economics and Data Science, BSc in Management, BSc in Mathematics, Statistics and Business, Erasmus Reciprocal Programme of Study and Exchange Programme for Students from University of California, Berkeley. This course is freely available as an outside option to students on other programmes where regulations permit. It does not require permission. This course is available with permission to General Course students.

Permission forms from the General Course admin office should be submitted to the Department of Finance by email at finance.ug@lse.ac.uk with a copy of the transcript attached.

Pre-requisites:

Before taking this course, students must have completed: (FM214 and FM215) or (FM210 and FM211).

This course examines how financial assets are priced and how investors manage risk across equity, fixed income, derivatives, and currency markets. Building on Principles of Finance I and II, it moves from portfolio theory to implementation: students analyse how large asset managers construct and hedge portfolios in practice, why standard models break down under estimation error and market stress, and how instruments from interest rate swaps to commodity futures are used to manage systematic exposures across asset classes.

The course is organised around a single integrating idea: assets are bundles of factor risks, and risk premia exist as compensation for exposure to systematic bad times. This framework connects every topic - bond immunisation, yield curve predictability, futures hedging, covered interest parity, and carry trades - into a coherent account of how risk and return are related across markets. Contemporary market episodes are used throughout to ground the theory in evidence. Students leave with both the analytical tools to price and hedge real instruments and the institutional context to understand how those tools are applied by the pension funds, sovereign wealth funds, and asset managers that shape global capital markets.
 

20 hours of lectures and 10 hours of classes in the Autumn Term.

Students are expected to complete weekly problem sets for classes and to make positive contributions to class discussion.

Detailed course programmes and reading lists are distributed at the start of the course. Illustrative textbooks include: Berk and DeMarzo, Corporate Finance, 5th Edition, Pearson International, and Bodie, Kane and Marcus, Investments, 12th Edition, McGraw Hill.

Exam (90%), duration: 90 Minutes in the January exam period.

Continuous assessment (10%).