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Module Specifications

Archived Version 2008 - 2009

Module Title	Financial Economics I
Module Code	MS427
School	School of Mathematical Sciences
Online Module Resources
Module Co-ordinator	Dr Olaf Menkens	Office Number
Level	4	Credit Rating	7.5
Pre-requisite	None
Co-requisite	None

Module Aims

To provide students with the knowledge of utility theory sufficient for analysis and solution of basic investment problems.
To ensure that students have clear understanding of the mean-variance portfolio theory.
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:

Use the utility theory for making optimal investment decisions.
Derive efficient frontiers and find optimal portfolios within the mean-variance portfolio.
Derive equilibrium relationships for expected rates of return.

Indicative Time Allowances
	Hours
Lectures	36
Tutorials	12
Laboratories	0
Seminars
Independent Learning Time	64.5

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 CT8 (v)
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. CT8 (i)
Portfolio Theory: Mean variance portfolio theory and its assumptions. CT8 (ii)
Models of Asset Return: Multifactor models, single index models, Capital Asset Pricing Model (CAPM), Arbitrage Pricing Model, Principle of No Arbitrage. CT8 (ii, iv, vi)
Discrete Financial Mathematics: Binomial tree model, derivative pricing, Cox-Ross-Rubinstein model, trinomial tree model, autoregressive models, Wilkie model. (T8 (vi, viii)
Portfolio Optimisation: Stochastic control theory in the discrete setting, Martingale method in the discrete setting.

Assessment
Continuous Assessment	25%	Examination Weight	75%

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 van der Hoek, Robert J. Elliott, Binomial Models in Finance, Springer, Berlin, 2006. (332.64/VAN)
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)
John C. Hull, Options, Futures, and other Derivatives, 6th Edition, Pearson Prentice Hall, Upper Saddle River, 2006. (332.632/HUL)
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. (332.6457/MCD)
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

BSSA

Study Abroad (DCU Business School)

BSSAO

Study Abroad (DCU Business School)

ECSA

Study Abroad (Engineering & Computing)

ECSAO

Study Abroad (Engineering & Computing)

BSc in Financial & Actuarial Mathematics

HMSA

Study Abroad (Humanities & Soc Science)