Dr Igor Makarov

Dr Georgy Chabakauri

This course is compulsory on the MSc in Finance (full-time), MSc in Finance (full-time) (Work Placement Pathway), MSc in Finance and Private Equity and MSc in Finance and Private Equity (Work Placement Pathway). This course is not available as an outside option to students on other programmes. This course uses controlled access as part of the course selection process. For information on controlled access courses, including eligibility, application processes, deadlines, and departmental contact details, please refer to the Controlled Access Courses webpage.

All students on a programme listed above will be given a place. This course is closed to outside students and does not permit auditing students.

Please contact finance.teachingmanager@lse.ac.uk with any queries.

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

• 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 seminars in the Autumn Term.

This course is taught in an interactive format. There is no distinction between lectures and classes/seminars; there are simply “sessions” where the pedagogical approach is always interactive.

Students will be expected to complete coursework regularly.

The organisation of topics of the course follows closely the treatment in Berk and DeMarzo, Corporate Finance, 6th 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.

Continuous assessment (100%).