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Module Specifications

Archived Version 2007 - 2008

Module Title Financial Economics I
Module Code MS427
School School of Mathematical Sciences

Online Module Resources

Module Co-ordinatorDr Olaf MenkensOffice Number
Level 4 Credit Rating 7.5
Pre-requisite None
Co-requisite None
Module Aims

1. To provide students with the knowledge of utility theory sufficient for analysis and solution of basic investment problems.

2. To ensure that students have clear understanding of the mean-variance portfolio theory.

3. To introduce students to the capital asset pricing model, and the arbitrage pricing theory.



Learning Outcomes

On completion of this model students should be able to:

1. Use the utility theory for making optimal investment decisions.

2. Derive efficient frontiers and find optimal portfolios within the mean-variance portfolio.

3. Derive equilibrium relationships for expected rates of return.



Indicative Time Allowances
Hours
Lectures 36
Tutorials 12
Laboratories 0
Seminars 24
Independent Learning Time 40.5
Total 112.5
Placements
Assignments
NOTE
Assume that a 7.5 credit module load represents approximately 112.5 hours' work, which includes all teaching, in-course assignments, laboratory work or other specialised training and an estimated private learning time associated with the module.

Indicative Syllabus

· Efficient Market Hypothesis

· Risk Measures: Define some possible measures of investment risk such as variance of returns, semi-variance of returns, and value at risk. Coherent risk measures and alternatives.

· Portfolio Theory: mean variance portfolio theory and its assumptions.

· Models of Asset Return: Multifactor models, single index models, Capital Asset Pricing Model (CAPM), Arbitrage Pricing Model, Principle of No Arbitrage.

· Discrete Financial Mathematics: Binomial tree model, derivative pricing, Cox-Ross-Rubinstein model, trinomial tree model, autoregressive models, Wilkie model.

· Portfolio Optimisation: Stochastic control theory in the discrete setting, Martingale method in the discrete setting.

Assessment
Continuous Assessment0% Examination Weight100%
Indicative Reading List

Essential:

· Edwin J. Elton, Martin J. Gruber, Stephen J. Brown, and William N. Goetzmann, Modern Portfolio Theory and Investment Analysis, 7th edition, John Wiley & Sons, New York, 2007. (332.6/ELT)

· John C. Hull, Options, Futures, and other Derivatives, 6th Edition, Pearson Prentice Hall, Upper Saddle River, 2006. (332.632/HUL)

· Yannick Malevergne, D. Sornette, Extreme Financial Risks: from Dependence to Risk Management, Springer, Berlin, 2006. (332.6015118/MAL)

Supplementary:

· Michael U. Dothan, Prices in Financial Markets, Oxford University Press, New York, 1990. (332.015192/DOT)

· David G. Luenberger, Investment Science, Oxford University Press, New York, 1998. (332.6/LUE)

· Robert L. McDonald, Derivatives markets, Boston and London, Addison-Wesley, 2005.

· Giorgio Szego, Portfolio Theory with Application to Bank Asset Management, Academic Press, 1980.

Background:

· Peter L. Bernstein, Against the Gods: The Remarkable Story of Risk, John Wiley & Sons, New York, 1996. (368/BER)

· Peter L. Bernstein, Capital ideas: the improbable origins of modern Wall Street, Free Press - Maxwell Macmillan International, 1993. (332.632/BER)

· Roger Lowenstein, When Genius Failed: the Rise and Fall of Long-Term Capital Management, Random House, New York, 2000. (332.6/LOW)

Programme or List of Programmes
BSSAStudy Abroad (DCU Business School)
BSSAOStudy Abroad (DCU Business School)
ECSAStudy Abroad (Engineering & Computing)
ECSAOStudy Abroad (Engineering & Computing)
FMBSc in Financial & Actuarial Mathematics
HMSAStudy Abroad (Humanities & Soc Science)
HMSAOStudy Abroad (Humanities & Soc Science)
MSBSc in Mathematical Sciences
SHSAStudy Abroad (Science & Health)
SHSAOStudy Abroad (Science & Health)
SMPSCSingle Module Professional Science
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