Prof Dimitrios Vayanos OLD 3.41, Dr Rohit Rahi OLD 3.43, Dr Konstantinos Zachariadis OLD M3.02 and Dr Igor Makarov OLD M3.08

Prof Kathy Yuan OLD M3.05

This course is compulsory on the MSc in Finance (full-time), MSc in Finance (part-time) and MSc in Finance and Private Equity. This course is not available as an outside option.

Aimed at people with a good undergraduate degree and good quantitative skills, with some knowledge of economics.

The aim of the course is to familiarise students with the workings of financial markets, and equip them with the fundamental tools of asset valuation. The course will focus on the three main asset classes - fixed income, stocks, and derivatives - giving a unified perspective of modern valuation methods. The starting point will be the present value formula. The course will then proceed to fixed-income securities, focusing mainly on government bonds. These will be valued off the term structure of interest rates, using the present value formula. The connection with the principle of no-arbitrage will be emphasized. The course will then move to stocks, starting with portfolio theory and then deriving the relation between risk and return (CAPM). The CAPM will provide a risk-adjusted discount rate that will be used to discount stocks' cash flows with the present value formula. Alternative pricing models such as the APT and multi-factor will also be covered, and the models will be applied to issues of asset allocation and portfolio selection. The last topic will be derivatives, especially futures and options. After familiarizing students with the use of derivatives, the course will cover the main valuation methods (binomial model, Black-Scholes) emphasizing again the principle of no-arbitrage.

60 hours of lectures. MSc Finance (part-time): taught MT, LT and ST (evenings). MSc Finance (full-time): taught MT (daytime).

Regular classworks will be completed, handed in and marked as part of formative assessment for this course.

The organisation of topics of the course follows closely the treatment in Berk and DeMarzo, Corporate Finance, 2nd Global Edition, Pearson International, and Bodie, Kane, and Marcus, Investments, 8th Edition, McGraw Hill. Other recommended readings and case studies will be included in a study pack.

Exam (80%, duration: 3 hours) in the main exam period.
In class assessment (10%, 1 words) in the MT.
In class assessment (10%) in the MT and LT.