**Course co-ordinator(s):** Dr Jing Yao (Edinburgh), Dr Anke Wiese (Edinburgh).

**Aims:**

The aim of this course is to provide post graduate students with a broad knowledge of asset pricing and portfolio selection models.

## Detailed Information

**Course Description: **Link to Official Course Descriptor.

**Pre-requisites:** none.

**Location: **Edinburgh.

**Semester: **2.

**Syllabus:**

• Utility Theory

• Stochastic Dominance

• Measures of Investment Risk

• Mean-Variance Portfolio Theory

• Models of Asset Returns

• Capital Asset Pricing Model

• Efficient Market Hypothesis and Behavioural Finance and Prospect Theory

**Learning Outcomes: Subject Mastery**

On completion of this module the student should be able to:

- Derive the properties of a utility function.
- State the conditions for absolute, first order and second order stochastic dominance.
- Calculate some important measures of risk: variance, semi-variance, shortfall probability and mean shortfall.
- Calculate the mean and variance of return on a portfolio of assets.
- Demonstrate an understanding of methods used to select portfolios of assets, including utility theory, stochastic dominance and mean-variance analysis.
- Describe the purpose and calculation of the following: opportunity set, efficient frontier, indifference curve, separation theorem.
- Develop a critical understanding on the theory of mean-variance model and understand its modifications using other risk measures.
- Describe the properties of single-factor and multi-factor models.
- Show how to fit a single-factor model to market price data.

Discuss the assumptions underlying and applications of the Capital Asset Pricing Model. - Derive the capital market line and the security market line.
- Understand the concept of risk premium in Arbitrage Pricing Theory.
- State the weak, semi-strong and strong forms of the efficient market hypotheses and discuss their economic implications.
- Discuss the topics in prospect theory: framing, reference points, probability.

**Learning Outcomes: Personal Abilities**

- Demonstrate the ability to learn independently
- Manage time, work to deadlines and prioritise workloads
- Present results in a way which demonstrates that they have understood the technical and broader issues of asset pricing.
- Communicate findings effectively in the financial services industry.

**Reading list:**

- Joshi & Paterson

*Introduction to Mathematical Portfolio Theory, 1st edition*.

Cambridge University Press. - Elton, E., Gruber, M., Brown, S. & Goetzmann, W.

*Modern Portfolio Theory and Investment Analysis, 9th edition*.

Wiley, New Jersey. (older versions are adequate)

**Assessment Methods:**

Examination will be at least 60% and no more than 80%.

Coursework will be at least 20% and no more than 40%.

Re-assessment in the next academic year

**SCQF Level: **11.

**Credits:** 15.

## Other Information

**Help:** If you have any problems or questions
regarding the course, you are encouraged to contact the lecturer

**VISION:** further information and course materials
are available on VISION