- The course is rather intense. There are both basic theoretical concepts and elaborate formal models of bond and equity markets as inputs to the course’s content. It involves considering both classic and recent research contributions to the area. This is to give students a solid and comprehensive understanding of the fundamentals and evolution of the Theory of Finance.
- To improve students’ understanding of basic theoretical concepts of the Theory of Finance;
- To present various techniques for appropriate pricing and / or detecting mispricing in bond and equity markets;
- To discuss management of uncertainty in pay-offs and portfolio optimization strategies;
- To guide students through applications of the Theory of Finance in preparation for future independent quantitative research.
- Market for discount and coupon bonds: basic assumption of bond pricing, alternative bond pricing techniques, sources of risk and hedging strategies
- Arbitrage and price consistency in bond markets: empirical issues
- Arbitrage and price consistency in bond markets: theoretical issues
- Market for contingent claims: the SDF model, risk-neutral valuation, and contingent claims valuation
- SDF and discount bond valuation
- Expected utility and risk aversion
- Portfolio Theory: expected utility maximization, the mutual fund theorem, the Sharpe portfolio separation theorem, portfolio choice with and without a safe asset; application to the mutual fund industry
- Capital Asset Pricing Model
- Alternative asset allocation strategies
- Interim assessment (4 module)0.2 * 1home assignment + 0.2 * 2 home assignment + 0.6 * Final test