- To improve understanding of basic theoretical concepts and elaborate formal models of financial theory
- To familiarize students with various techniques for setting fair pricing and detecting arbitrage mispricing in bond and equity markets
- To familiarize students with management of uncertainty of payoffs and strategies of portfolio optimization
- To guide students through applications of financial theory in preparation for future independent research
- Clearly articulate on key finance issues in valuation of bonds and equities, identify and understand important research contributions to the evolution of financial theory
- Distinguish among formal models and critically discuss key facts about them (assessment, implications, uniqueness, debatable aspects, etc.), draw an analytical conclusion based on these key facts
- Be familiar with research at the frontier of finance, formulate a research proposal, identify the problem, attach importance and suggest appropriate solution techniques
- Possess sufficient knowledge and competence in finance issues to be able to progress to a career in financial industry or to take on an independent research at a PhD level at a university either at home or abroad
- Market for discount and coupon bondsPrice risk and default risk; linearity and value additivity; valuation in a single period; and in multiple periods; discount yield and discount price; forward rates; linear and non-linear pricing; coupon effect; duration and convexity
- Consistent prices and no-arbitrage in bond marketsZero-coupon term structure and coupon term structure; discount function; consistent pricing equations; complete coupon bond market model; incomplete coupon bond market model; equivalence theorem; hyperplane separation theorem
- Consistent prices and no-arbitrage in state contingent marketsNon-defaultable markets vs state contingent markets; state prices vs date prices; stochastic discount factor model, risk-neutral valuation model; contingent claims valuation model; isomorphism; risk premium within the SDF framework and the risk-neutral framework; price and quantity of risk
- Spot rate modelling and discount bond valuationLog-normal lemma; spot rate dynamic process; SDR dynamic process; Vasicek affine yield model: discrete derivation and critical assessment
- Portfolio TheoryRisk aversion and utility function; Jensen’s inequality; absolute and relative risk premium; CARA and CRRA; gambling vs investment; expected utility maximization; monotonic transformation; Mutual fund theorem and Sharpe portfolio separation theorem; portfolio choice with a safe asset and unconstrained optimization; portfolio choice without a safe asset and constrained optimization; minimum variance portfolio and optimal portfolio
- Capital Asset Pricing ModelEquilibrium assumption; characteristic line and the beta coefficient; CAPM as a special case of the SDF model; application of CML and SML
- Non-graded home assignmentStudents are expected to prepare home assignments by the tutorials. Home assignments are not graded (except for one home assignment) and provide a self-check option for students. There is no make-up policy for non-graded home assignments.
- Graded home assignmentThe graded home assignment submitted beyond the deadline is not accepted. A student who fails to submit the graded home assignment and does not have a good excuse will not resubmit it. The null grade will be given. A good excuse means that a student is ill for no less than 50% of the preparation period which starts on the date the graded home assignment is announced and ends on the date the submission deadline is over. A student who fails to submit the graded home assignment and has a good excuse will resubmit another version in due time.
- Final testA student who misses the final test and does not have a good excuse will not resit it. The null grade will be given. If a student misses the final test with a good excuse, we will make it up in due time. A good excuse means that a student is ill on the final test date. If this student misses the final test with a good excuse, we will make it up in due time. A student who fails the course will be re-examined in all topics of the course in due time. The re-examination weight is 100%.