F70FM - Financial Markets and Investments
Course leader(s):
Aims
To develop knowledge and expertise in key approaches in financial economics including utility theory, portfolio selection models, asset models, and derivatives markets and aspects of their pricing.
Syllabus
1. Utility Theory
2. Measures of investment risk
3. Portfolio Theory
4. Single-period models of asset returns
5. Equilibrium models
6. Efficient market hypothosis
7. General properties of derivatives
8. Binomial Pricing Models
2. Stochastic Dominance
8. Multi-period models of asset returns
9. Behavioural Economics
Learning outcomes
By the end of the course, students should be able to do the following:
- Show an understanding of the market in financial derivatives and what their purpose is, and derive basic properties of financial derivatives.
- Show an understanding of the binomial model for asset dynamics; its application to derivative pricing; and the role and importance of the risk-neutral probability measure.
- Describe the general one-period Markowitz model for financial returns on n assets. Use this model to derive optimal portfolios balancing risk versus return.
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Discuss the assumptions and uses of the Capital Asset Pricing Model. Derive the capital market line and security market line.
- Derive the properties of a utility function.
- Calculate an investor's expected utility of an investment.
- Calculate the following measures of risk: variance, semi-variance, shortfall probability, mean shortfall and Value-at –Risk (VaR).
- Describe the properties of single factor and multi factor models. Show how to fit a single index model using historic data.
- Demonstrate the ability to learn independently
- Manage time, work to deadlines and prioritise workloads
- Present results in a way that demonstrates that they have understood the technical and broader issues of financial markets and investments
- State the conditions for absolute dominance, first and second order stochastic dominance. Show how first and second order stochastic dominances are related to utility theory. Demonstrate whether investments have dominance over each other.
- Describe the properties of specified multi-period asset models.
- Describe the basic principles of Behavioural economics and prospect theory
Further details
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SCQF Level: 10
Credits: 15
