Unit information: Asset Pricing in 2017/18

Unit name	Asset Pricing
Unit code	ECONM2035
Credit points	15
Level of study	M/7
Teaching block(s)	Teaching Block 1 (weeks 1 - 12)
Unit director	Professor. Stoja
Open unit status	Not open
Pre-requisites	None
Co-requisites	None
School/department	School of Accounting and Finance - Business School
Faculty	Faculty of Social Sciences and Law

Description including Unit Aims

The way in which financial assets are priced is at the core of the theory of finance. This unit provides students with a rigorous foundation in modern asset pricing theory and an appreciation of the successes and shortcomings of that theory via an analysis of empirical work in the field. The unit begins with an exposition of mean-variance theory leading to a derivation of the Capital Asset Pricing model. Multi-factor models and Arbitrage Pricing Theory are considered next before students are introduced to some consumption-based asset pricing. There is then a review of empirical work evaluating these asset pricing models. The pricing of bonds and the term structure of interest rates are discussed next. Finally, students are introduced to the key features of various derivatives before the pricing of derivatives using absence of arbitrage techniques is presented.

Intended Learning Outcomes

This unit aims to give students the ability to derive and compare modern asset pricing paradigms, along with the ability to critically evaluate them via an understanding of the results of empirical work in the field. Having successfully completed this unit students should be able to:

1. Derive and explain standard asset pricing theories including the CAPM and APT.
2. Evaluate and compare the merits of these theories via an appreciation of empirical work in this area.
3. Discuss the pricing of bonds and theories of the term structure of interest rates.
4. Describe the basic features of various financial derivatives and derivatives markets.
5. Employ simple absence of arbitrage techniques to price financial derivatives.

Teaching Information

Lectures and small group seminars. Typically, there are two hours of lectures and one hour of seminars/exercise lectures for each week over 10 weeks.

Assessment Information

Summative assessment:

Three-hour closed book examination: 100%. The examination will test the ability of students to critically analyse a range of issues on asset pricing as set out in ILOs 1-5.

Formative assessment:

One formative assignment on the asset pricing theory of Efficient Markets Hypothesis overarching ILOs 1-5.

Reading and References

1. Z. Bodie, A. Kane and A. Marcus (2014), Investments, 10th edition, McGraw-Hill, [BKM14].

2. E. Elton, M. Gruber, S. Brown and W. Goetzmann (2007), Modern Portfolio Theory and Investment Analysis, 7th edition, Wiley, [EGBG07]

3. M. Grinblatt and S. Titman (1998), Financial Markets and Corporate Strategy, International edition, McGraw-Hill, [GT98]