Start a new search?

AC.F215: Advanced Principles of Finance

Department: Accounting and Finance NCF Level: FHEQ/QCF/NQF6//RQF6
Study Level: Part II (any yr) Credit Points: 15.0
Start Date: 15-01-2018 End Date: 27-04-2018
Available for Online Enrolment?: Y Enrolment Restriction: Fully available to all students
Module Convenor: Dr S Nolte

Syllabus Rules and Pre-requisites

  • The student must take 1 modules from the following group:

CMod description

  • This module provides a detailed analysis of three key finance paradigms: decision-making under uncertainty, including utility theory; capital asset pricing and market equilibrium; and option pricing and hedging strategies. Emphasis is placed on financial concepts, theories and models such as portfolio theory, the efficient market hypothesis, and theories of capital structure.

Curriculum Design: Outline Syllabus

  • Background mathematical reading Material below is REQUIRED as part of "Prerequisites" and will NOT be covered during lectures:

    • Copeland and Weston appendix B (Matrix Algebra);
    • Copeland and Weston appendix D (Calculus and Optimization).

    Decision making under uncertainty
    ? Preference relation
    ? Expected Utility Theorem
    ? Risk Aversion, Risk Premium
    ? Absolute Risk Aversion
    ? Examples: Optimal investment in risky asset; Basic insurance contract
    ? Reading: Copeland and Weston chapter 3

    Arbitrage pricing
    ? Arbitrage
    ? State-prices
    ? Complete and incomplete markets
    ? Risk-neutral probabilities
    ? Pricing kernel
    ? Reading: Copeland and Weston chapter 4

    Mid-term test (for 2016)
    ? Monday Week 16 16-17:00 in Great Hall A.27
    ? Duration: 45 minutes.

    Derivatives pricing
    ? Dynamic behaviour of asset prices
    ? Binomial pricing model
    ? Examples: Put-Call parity; Option Pricing
    ? Reading: Copeland and Weston chapter 7

    Market equilibrium
    ? Mean-variance trade-offs
    ? CAPM
    ? Reading: Copeland and Weston chapters 5 and 6

  • 75% Exam
  • 25% Coursework

Educational Aims: Subject Specific: Knowledge, Understanding and Skills

  • This elective course provides a detailed analysis of three key Finance paradigms:

    1. Decision making under uncertainty, including:

    ? utility theory

    2. Risk-neutral pricing, including:

    ? dynamic behaviour of asset prices

    ? arbitrage pricing in complete and incomplete markets

    ? derivative securities

    ? self-financing strategies

    3. Capital asset pricing, including:

    ? mean-variance trade-offs

    ? market equilibrium

Learning Outcomes: Subject Specific: Knowledge, Understanding and Skills

  • After successful completion of the course students should be able to:

    • Apply utility theory to simple decisions faced by risk-averse individuals.

    • Carry out basic mean-variance analysis and understand its relationship with the capital asset pricing model.

    • Use the capital asset pricing model to estimate returns on risky assets.

    • Understand the link between no arbitrage, market completeness and risk-neutral pricing and what is necessary for markets to be complete and risk-neutral pricing to be appropriate.

    • Apply risk-neutral probability methods to price derivative securities and construct hedging strategies in discrete time models.

Contact Information

If you encounter any difficulties accessing Online Courses Handbook information please contact the Student Registry:

If you require further details in relation to academic content please contact the appropriate academic department directly.

Related Pages