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 FM213 Principles of Finance.

This course will present modern theories of financial markets and asset valuation. The first part of the course, taught by Ian Martin, will cover the principle of no arbitrage, state prices and the stochastic discount factor, utility functions and portfolio choice, and equilibrium pricing and risk-neutral pricing. It will also apply these tools to forecast market returns. The second part of the course, taught by Dimitri Vayanos, will build on this material and develop additional tools to explore the effects of frictions in financial markets, such as asymmetric information, costs of search and market participation, leverage constraints and delegated portfolio management.

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

Midterm exam (two questions from Prof Martin) and final in-class exam (one question from Prof Martin, three questions from Prof Vayanos).