Prof Ian Martin and Prof Dimitrios Vayanos

This course is compulsory on the BSc in Finance. This course is not available as an outside option nor to General Course students.

 Students must have completed either FM212 or FM213.

This course will present the modern theories of financial markets and of asset valuation. We will start with the foundations: the principle of no arbitrage, state prices and the stochastic discount factor, utility functions and portfolio choice, equilibrium pricing and risk-neutral pricing. We will then apply the basic tools in a variety of contexts, such as forecasting the market, and exploring the impact of market frictions such as asymmetric information, leverage constraints, and agency issues.

33 hours of seminars in the MT.

This course is taught in the interactive lecturing format. There is no distinction between lectures and classes/seminars; there are “sessions” only, and the pedagogical approach in each session is interactive.

Teaching notes will be provided

In class assessment (60%), in class assessment (30%) and class participation (10%) in the MT.

Midterm exam (30%, two questions from Prof Martin), final in-class exam (60%, one question from Prof Martin, three questions from Prof Vayanos)