Delivered at:: School of Finance

Course type:: Compulsory course

When:: 1 year, 3 module

Instructor

Shchepeleva, Maria

Full Syllabus

Abstract

a) Pre-requisites The course assumes a good knowledge of microeconomics (utility and equilibrium theories), a sound command of calculus, standard knowledge of the probability theory and mathematical statistics. b) Abstract This course introduces fundamental ideas in the theory of finance. It consists of three parts, including microeconomic foundations of finance, general ideas from corporate finance and asset pricing theory. The first section covers a number of topics, ranging from individual decision making under certainty and uncertainty to market equilibrium and the impact of information asymmetry on exchange outcomes. The second section revises some fundamental ideas from capital structure management such as Modigliani- 2 Miller theorem, the concept of WACC, the role of taxes and dividend policy in creating company’s value. The third section studies conventional models of asset pricing, e.g. the capital asset pricing model (CAPM) and its extensions, the arbitrage pricing theory (APT) and martingale pricing methods.

Learning Objectives

This course is intended to give students a comprehensive understanding of the fundamental theoretical concepts in finance and describe various techniques for appropriate pricing of financial instruments
Цели освоения дисциплины «Теория финансов» заключаются в получении студентами представления о структуре финансовых рынков, основных способах ценообразования активов на финансовом рынке, стратегиях, используемых участниками рыночных операций.

Expected Learning Outcomes

Competence: A student should be able to understand and discuss the logic of capital structure decisions
Competence: A student should read and understand journal articles that make use of the concepts and methods introduced in the course
Competence: A student should understand corporate payout decisions
Competence: A student should understand the principles of Arrow-Debreu pricing and martingale pricing
Knowledge: At the end of the course students are expected to know: Efficient Market Hypothesis and models of financial equilibrium with differential information
Knowledge: At the end of the course students are expected to know: Fisher Separation Theorem
Knowledge: At the end of the course students are expected to know: the classic issues of the Financial Theory (stochastic discount factor, risk-neutral valuation, (in)complete markets, asymmetric information, equilibrium and arbitrage pricing)
Knowledge: At the end of the course students are expected to know: the fundamental notions of Corporate Finance (capital structure, WACC, Modigliani-Miller Theory on Capital Structure, tax shield, dividend puzzle)
Knowledge: At the end of the course students are expected to know: the main assumptions of the modern portfolio theory, CAPM and APT
Skills: A student should be able to describe and apply modern portfolio theory
Skills: A student should be able to describe and explain the causes and consequences of financial crises
Skills: A student should be able to describe and explain the causes and consequences of financial crises apply utility theory to analyze investment decisions under certainty and uncertainty
Skills: A student should be able to describe, apply and criticize single and multiple factor asset pricing models

Course Contents

The role of financial markets in macroeconomics. Financial crises and macroprudential policy.
Introduction to the Theory of Finance: evolution of the discipline and the classic issues in finance.
What determines the demand for financial assets? Making choices in risky situations. Risk aversion and investment decisions.
Corporate financial decision making. Part 1.
Corporate financial decision making. Part 2.
Modern Portfolio Theory.
The Capital Asset Pricing Model.
Arrow-Debreu Pricing. The Consumption Capital Asset Pricing Model.
Arbitrage Pricing. The Martingale Measure. The Arbitrage Pricing Theory.
Efficient Market Hypothesis. Financial equilibrium with differential information.

Assessment Elements

Cumulative mark
Rounding of Cumulative mark is applied only at the final stage of the course. Components of the Cumulative mark are not rounded.
Final exam
The final test will be closed-book, in a written form, and will be arranged at the end of module 3.

Interim Assessment

2021/2022 3rd module
0.4 * Final exam + 0.6 * Cumulative mark

Bibliography

Recommended Core Bibliography

Danthine, J.-P., & Donaldson, J. B. (2014). Intermediate Financial Theory (Vol. 3rd ed). Burlington: Academic Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=485499

Recommended Additional Bibliography

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

Master’s Programme 'Financial Markets and Institutions'

Topical Issues in Financial Economics