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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 Lancaster Part II Pre-requisites
- Curriculum Design
- Assessment Weights
- Educational Aims
- Learning Outcomes
- Part 1 Modules Video
- Teaching Pattern
Syllabus Rules and Pre-requisites
- The student must take 1 modules from the following group:
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
? 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.
? Dynamic behaviour of asset prices
? Binomial pricing model
? Examples: Put-Call parity; Option Pricing
? Reading: Copeland and Weston chapter 7
? Mean-variance trade-offs
? Reading: Copeland and Weston chapters 5 and 6
- 75% Exam
- 25% Coursework
Educational Aims: Subject Specific: Knowledge, Understanding and Skills
Thiselective course provides a detailed analysis of three key Finance paradigms:
1. Decision making under uncertainty, including:
2. Risk-neutral pricing, including:
?dynamic behaviour of asset prices
?arbitrage pricing in complete and incomplete markets
3. Capital asset pricing, including:
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.
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