Master
2021/2022
Theory of Finance
Type:
Compulsory course (Master of Finance)
Area of studies:
Finance and Credit
Delivered by:
HSE Banking Institute
Where:
HSE Banking Institute
When:
1 year, 2 module
Mode of studies:
distance learning
Open to:
students of one campus
Instructors:
Pavel Malyshev
Master’s programme:
Master of Finance
Language:
English
ECTS credits:
5
Contact hours:
8
Course Syllabus
Abstract
This course is designed to introduce to students the fundamental issues of the Theory of Finance. It is an in-depth study of what the fundamental properties of key financial instruments are and what techniques based on these properties for appropriate pricing and / or detecting mispricing have been suggested. In addition to a thorough insight into fundamental theoretical concepts the course covers some areas of related applied / quantitative research. Two key types of financial instruments are studied throughout the course, bonds and equities. The course’s focus is on fundamental and advanced concepts as well as applications in asset pricing in bond and equity markets. It investigates into what are approaches to asset pricing when pay-offs are certain (fixed claims) and when pay-offs are uncertain (state contingent claims). The course provides essential knowledge and competence at a postgraduate level to those students who intend to follow careers in applied or quantitative finance, as well as to those students who intend to pursue further research. It would be beneficial for perspective CFA level 2&3 test takers as well.
Learning Objectives
- This course is designed to introduce to students the fundamental issues of the Theory of Finance. It is an in-depth study of what the fundamental properties of key financial instruments are and what techniques based on these properties for appropriate pricing and / or detecting mispricing have been suggested. In addition to a thorough insight into fundamental theoretical concepts the course covers some areas of related applied / quantitative research. Two key types of financial instruments are studied throughout the course, bonds and equities. The course’s focus is on fundamental and advanced concepts as well as applications in asset pricing in bond and equity markets. It investigates into what are approaches to asset pricing when pay-offs are certain (fixed claims) and when pay-offs are uncertain (state contingent claims). The course provides essential knowledge and competence at a postgraduate level to those students who intend to follow careers in applied or quantitative finance, as well as to those students who intend to pursue further research. It would be beneficial for perspective CFA level 2&3 test takers as well.
Course Contents
- 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
Bibliography
Recommended Core Bibliography
- Asset pricing, Cochrane, J. H., 2005
- Cochrane, J. H. (2005). Asset Pricing (Vol. Rev. ed). Princeton, N.J.: Princeton University Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=329716
Recommended Additional Bibliography
- Campbell, J. Y., Lo, A. W., & MacKinlay, A. C. (2012). The Econometrics of Financial Markets. New Jersey: Princeton University Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=1891894
- Jaksa Cvitanic, & Fernando Zapatero. (2004). Introduction to the Economics and Mathematics of Financial Markets. The MIT Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.b.mtp.titles.0262532654
- The econometrics of financial markets, Campbell, J. Y., 1997