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Regular version of the site
Bachelor 2020/2021

Asset Pricing and Financial Markets

Area of studies: Economics
When: 3 year, 1-4 module
Mode of studies: distance learning
Open to: students of one campus
Instructors: Sylvain Carré, Nikita Pirogov, Перминова Марина Владимировна, Омарова Алия Айдаровна, Давитая Александр Георгиевич, Зимрутян Гаянэ Аршаковна
Language: English
ECTS credits: 16

Course Syllabus

Abstract

This course is aimed at students who wish to understand how financial markets work and how securities are priced. Using present value techniques, it gives a theoretical treatment of bond and stock valuation including portfolio theory and a development of the Capital Asset Pricing Model. The concept of financial market efficiency is introduced, and evidence for efficiency evaluated. Finally, there is a presentation of derivative pricing using absence of arbitrage arguments. The course is based on lectures, seminars, team work and self-study. “Asset pricing and Financial markets” is a two-semester course designed to prepare students for UOL examination.
Learning Objectives

Learning Objectives

  • The main objective of the course is to provide a conceptual background for the valuation of financial assets and a professional discussion of asset pricing approaches. The course aims include : 1) comprehending the no-arbitrage condition as a key valuation principle 2) providing students with a thorough grounding in asset pricing 3) developing students’ skills in applying pricing methods to realistic scenarios 4) provide a critical overview of the research on financial markets efficiency 5) developing students’ understanding of how security markets operate.
Expected Learning Outcomes

Expected Learning Outcomes

  • apply Black-Scholes formula
  • Apply present value techniques to price stocks and bonds
  • be able to put the notion of pricing by replication under absence of arbitrage in practice for simple contracts like forwards and in the binomial tree model
  • Describe the important differences between stock, bond and derivative securities.
  • explain under which conditions efficiency may not fully hold
  • Outline the purpose of derivative products; know the most common ones
  • Present, explain and apply the Capital Asset Pricing model for computing expected stock returns.
  • Explain how to price assets using both present value and absence of arbitrage methods.
  • Evaluate portfolio choice problems.
  • Employ mathematical tools to compute risk and return for portfolios of securities.
  • define the EMH and explain what it means in practice
Course Contents

Course Contents

  • Introduction to the Course. No arbitrage condition as a basic valuation principle
    No arbitrage rule and the principle of tracking (replicating) portfolio. Net present value rule of corporate analysis. The sources of NPV. The consumption choice and the first Fisher separation theorem.
  • Fundamentals of Bond Valuation
    The yield curve. Spot rates and forward rates. Defining forward rate from the yield curve. The term structure of interest rates: theoretical explanation. The role of term structure of interest rates in constructing tracking (replicating) portfolio for Corporate Bonds. Intrinsic value of stand-alone bond. Discounted cash flow valuation of corporate bonds. Corporate bond's types. Bond’s covenants: assets covenants, dividend covenants, financing covenants. The influence of covenants over bond’s valuation. Bond's yields: promised yield to maturity, realized (horizon yield), promised yield to call. Theorems of bond's pricing. Bond’s rating and yields to maturity.
  • Fundamentals of Stock Valuation
    Types of preferred stock by voting rights, dividend rates and dividend payments. Discounted dividend model (DDM) for preferred (preference) shares. Discounted dividend model for common stock (ordinary shares): the criteria for stable growing company, Gordon constant growth dividend rate model. Multistage DDM: 2 stages dividend growth, negative rate of dividend growth. Growth opportunities value. The limitations of DCF valuation.
  • Risk and Expected Return: Principles of Portfolio Analysis
    Principles and assumptions of mean-variance analysis. Mean and variance of returns of a risky asset. Portfolio expected returns. Portfolio risk and assets’s covariances. Feasible set of assets and the efficient frontier. Capital market line. Two-fund separation.
  • Asset Pricing Approaches: CAPM, APT and alternatives
    Assumptions for capital asset pricing model. Market portfolio and its derivation. Security market line. Stocks' beta. Empirical evidence and critiques of CAPM. Understanding singlefactor and multi-factor model representation. Systematic risk and diversification. Arbitrage price theory. Empirical evidence of multi-factor models and applications in practice.
  • Derivatives Valuation Models
    The definition of a derivative contract; how to price derivatives using absence of arbitrage; forwards and futures contracts; pricing forwards on stocks, currencies and commodities; option contracts; practical uses of options contracts; bounds on option premia; option pricing via binomial models and Black-Scholes
  • The role of Efficient Market Hypothesis in Corporate Analysis: Theory and Evidence
    Types of information for investor’s decision-making. The value of information for the investor. The efficient market hypothesis. Weak, semi-strong, strong form efficiency. Implications of Efficient Market Hypothesis.
Assessment Elements

Assessment Elements

  • non-blocking Midterm exam 1 (October).
    Examination is in writing. Sample materials for knowledge assessment are available in ICEF Information system at https://icef-info.hse.ru. Для студентов она дистанте экзамен проводится в письменной форме с использованием асинхронного прокторинга. Экзамен проводится на платформе https://hse.student.examus.net). К экзамену необходимо подключиться за 10 минут до начала. Проверку настроек компьютера необходимо провести заранее, чтобы в случае возникших проблем у вас было время для обращения в службу техподдержки и устранения неполадок. Компьютер студента должен удовлетворять требованиям: 1. Стационарный компьютер или ноутбук (мобильные устройства не поддерживаются); 2. Операционная система Windows (версии 7, 8, 8.1, 10) или Mac OS X Yosemite 10.10 и выше; 3. Интернет-браузер Google Chrome последней на момент сдачи экзамена версии (для проверки и обновления версии браузера используйте ссылку chrome://help/); 4. Наличие исправной и включенной веб-камеры (включая встроенные в ноутбуки); 5. Наличие исправного и включенного микрофона (включая встроенные в ноутбуки); 6. Наличие постоянного интернет-соединения со скоростью передачи данных от пользователя не ниже 1 Мбит/сек; 7. Ваш компьютер должен успешно проходить проверку. Проверка доступна только после авторизации. Для доступа к экзамену требуется документ удостоверяющий личность. Его в развернутом виде необходимо будет сфотографировать на камеру после входа на платформу «Экзамус». Также вы должны медленно и плавно продемонстрировать на камеру рабочее место и помещение, в котором Вы пишете экзамен, а также чистые листы для написания экзамена (с двух сторон). Это необходимо для получения чёткого изображения. Во время экзамена запрещается пользоваться любыми материалами (в бумажном / электронном виде), использовать телефон или любые другие устройства (любые функции), открывать на экране посторонние вкладки. В случае выявления факта неприемлемого поведения на экзамене (например, списывание) результат экзамена будет аннулирован, а к студенту будут применены предусмотренные нормативными документами меры дисциплинарного характера вплоть до исключения из НИУ ВШЭ. Если возникают ситуации, когда студент внезапно отключается по любым причинам (камера отключилась, компьютер выключился и др.) или отходит от своего рабочего места на какое-то время, или студент показал неожиданно высокий результат, или будут обнаружены подозрительные действия во время экзамена, будет просмотрена видеозапись выполнения экзамена этим студентом и при необходимости студент будет приглашен на онлайн-собеседование с преподавателем. Об этом студент будет проинформирован заранее в индивидуальном порядке. Во время выполнения задания, не завершайте Интернет-соединения и не отключайте камеры и микрофона. Во время экзамена ведется аудио- и видео-запись. Процедура пересдачи проводится в соответствии с нормативными документами НИУ ВШЭ.
  • non-blocking Midyear exam (December)
    Examination is in writing. Sample materials for knowledge assessment are available in ICEF Information system at https://icef-info.hse.ru.
  • non-blocking Midterm exam 2 (March)
    Examination is in writing. Sample materials for knowledge assessment are available in ICEF Information system at https://icef-info.hse.ru.
  • non-blocking Final exam (UoL or ICEF).
    Examination is in writing. Sample materials for knowledge assessment are available in ICEF Information system at https://icef-info.hse.ru.
  • non-blocking Individual home assignments, group assignment (1 semester)
    « Individual assignments » include written and online home assignments weighted with similar weights and one large assignment on the literature that has a weight of 5 small ones.
  • non-blocking Class participation, 2nd semester
    « Class participation » includes class activity and attendance.
  • non-blocking Class participation, 1st semester
    « Class participation » includes class activity and attendance.
  • non-blocking Individual home assignments, group assignment (2 semester)
    « Individual assignments » include written and online home assignments weighted with similar weights and one large assignment on the literature that has a weight of 5 small ones.
Interim Assessment

Interim Assessment

  • Interim assessment (2 module)
    0.1 * Class participation, 1st semester + 0.25 * Individual home assignments, group assignment (1 semester) + 0.2 * Midterm exam 1 (October). + 0.45 * Midyear exam (December)
  • Interim assessment (4 module)
    0.02 * Class participation, 1st semester + 0.1 * Class participation, 2nd semester + 0.4 * Final exam (UoL or ICEF). + 0.05 * Individual home assignments, group assignment (1 semester) + 0.1 * Individual home assignments, group assignment (2 semester) + 0.04 * Midterm exam 1 (October). + 0.2 * Midterm exam 2 (March) + 0.09 * Midyear exam (December)
Bibliography

Bibliography

Recommended Core Bibliography

  • Brealey, R. A., & Myers, S. C. (2012). Principles of corporate finance. Slovenia, Europe: Irwin. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.BA880E76

Recommended Additional Bibliography

  • Copeland, T. E., Weston, J. F., & Shastri, K. (2014). Financial Theory and Corporate Policy: Pearson New International Edition (Vol. 4th ed). Harlow, Essex: Pearson. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=1418250
  • Financial markets and corporate strategy, Grinblatt M., Titman S., 2002