Asset Pricing and Financial Markets

Bachelor 2021/2022

Type: Elective course

Area of studies: Applied Mathematics and Information Science

Delivered by: Big Data and Information Retrieval School

Where: Faculty of Computer Science

When: 4 year, 1-3 module

Mode of studies: offline

Open to: students of one campus

Instructors: Veronika Vinogradova

Language: English

ECTS credits: 7

Contact hours: 104

Full Syllabus

Abstract

This course is aimed at students who wish to understand how financial markets work and how securities are priced. It provides a sound foundation in bond and security pricing using present value techniques, introduces the key concepts of portfolio theory by Harry Markowitz and leading asset pricing models and teaches how to create the optimal securities portfolio. It also provides valuable insights into the concept of financial market efficiency and explains why so many bubbles and market crashes happen. Finally, it presents the derivative instruments, teaches how to price and how to trade them. The course is designed as a preparation course for the examination at the University of London

Learning Objectives

Students will learn how the interest rates are determined and what happens when they change. Moreover, they will learn to understand what bond dealers mean when they quote spot rates or yields to maturity.
Students will become familiar with stock markets, how they work and the concept of present value to price common stocks.
Students will learn how the risk is defined and how it influences the rates of return in capital markets
Students will know the leading theories linking risk and returns in a competitive economy and explains how these theories can be used to estimate the returns required by investors in different stock-market investments
Students will be aware of the major issues of capital market efficiency
Students will learn about derivative securities and be taught to price them

Expected Learning Outcomes

Having completed the course and done the required reading and assessments, a student should be able to: • Evaluate portfolio choice problems • Present, explain and apply the Capital Asset Pricing Model for computing expected returns • Critically evaluate the evidence for informational efficiency of stock markets • Price derivative securities using absence of arbitrage
Having completed the course and done the required reading and assessments, a student should be able to: • Explain how to price assets using both present value and absence of arbitrage methods • Describe the important differences between stock, bond and derivative securities • Apply present value techniques to price stock and bonds • Employ mathematical tools to compute risk and return for portfolios of securities

Course Contents

Introduction to the course and its basic principles
Understanding and pricing government bonds
Valuation of stocks
Risk, returns and stock portfolios
Portfolio theory and the CAPM
Market efficiency
Derivative securities and derivative pricing

Assessment Elements

Attendance/Punctuality
Class participation + home team assignments
Mini-cases
Quizes
Mid-term exam
Final exam

Interim Assessment

2021/2022 3rd module
0.4 * Final exam + 0.2 * Mid-term exam + 0.1 * Quizes + 0.15 * Mini-cases + 0.15 * Class participation + home team assignments

Bibliography

Recommended Core Bibliography

Brealey, R. A., & Allen, F. (2015). Principles of corporate finance. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.BEEE7487

Recommended Additional Bibliography

Berk, J. B., & DeMarzo, P. M. (2017). Corporate Finance: The Core, Global Edition: Vol. Fourth edition. Pearson.

Course Syllabus