Asset Pricing and Financial Markets

2023/2024

Academic Year

ENG

Instruction in English

8

ECTS credits

Delivered at:

International College of Economics and Finance

Course type:

Compulsory course

When:

3 year, 1-4 module

Instructors

Geng, Runjie

Зимрутян Гаянэ Аршаковна

Киприянов Алексей Алексеевич

Никишина Алёна Евгеньевна

Perminova, Marina

Чистотинова Вероника Андреевна

Course Syllabus

Abstract

This course is aimed at students who wish to understand how financial markets work and how securities are priced. Using present value techniques, it gives a theoretical treatment of bond and stock valuation including portfolio theory and a development of the Capital Asset Pricing Model. The concept of financial market efficiency is introduced, and evidence for efficiency evaluated. Finally, there is a presentation of derivative pricing using absence of arbitrage arguments. The course is based on lectures, seminars, team work and self-study. “Asset pricing and Financial markets” is a two-semester course.

Learning Objectives

• The main objective of the course is to provide a conceptual background for the valuation of financial assets and a professional discussion of asset pricing approaches. The course aims include : 1) comprehending the no-arbitrage condition as a key valuation principle 2) providing students with a thorough grounding in asset pricing 3) developing students’ skills in applying pricing methods to realistic scenarios 4) provide a critical overview of the research on financial markets efficiency 5) developing students’ understanding of how security markets operate.

Expected Learning Outcomes

• apply Black-Scholes formula
• Apply present value techniques to price stocks and bonds
• be able to put the notion of pricing by replication under absence of arbitrage in practice for simple contracts like forwards and in the binomial tree model
• define the EMH and explain what it means in practice
• Describe the important differences between stock, bond and derivative securities.
• Employ mathematical tools to compute risk and return for portfolios of securities.
• Evaluate portfolio choice problems.
• Explain how to price assets using both present value and absence of arbitrage methods.
• explain under which conditions efficiency may not fully hold
• Outline the purpose of derivative products; know the most common ones
• Present, explain and apply the Capital Asset Pricing model for computing expected stock returns.

Course Contents

• Introduction to the Course. No arbitrage condition as a basic valuation principle
• Fundamentals of Bond Valuation
• Fundamentals of Stock Valuation
• Risk and Expected Return: Principles of Portfolio Analysis
• Asset Pricing Approaches: CAPM, APT and alternatives
• The role of Efficient Market Hypothesis in Corporate Analysis: Theory and Evidence
• Derivatives Valuation Models

Assessment Elements

• Winter Exam
• Midterm exam 1
• Final Exam
• Домашние задания
  Home assignments are solved individually.
• Midterm exam 2

Interim Assessment

• 2023/2024 2nd module
  0.29 * Midterm exam 1 + 0.51 * Winter Exam + 0.1 * Домашние задания + 0.1 * Домашние задания
• 2023/2024 4th module
  0.575 * Final Exam + 0.35 * Midterm exam 2 + 0.065 * Домашние задания + 0.01 * Домашние задания

Bibliography

Recommended Core Bibliography

• Vernimmen, P. (2011). Corporate Finance : Theory and Practice (Vol. 3rd ed). Chichester, West Sussex: Wiley. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=398584

Recommended Additional Bibliography

• Financial markets and corporate strategy, Grinblatt, M., 2002