Registry

Module Specifications

Archived Version 2010 - 2011

Module Title	Financial Economics I
Module Code	MS427
School	School of Mathematical Sciences
Online Module Resources
Module Co-ordinator	Dr Olaf Menkens	Office Number
NFQ level	8	Credit Rating	7.5
Pre-requisite	None
Co-requisite	None
Compatibles	None
Incompatibles	None

Description

Students will learn how to use standard financial economic methods for investment decisions and option pricing in a discrete time setting. The methods include mean-variance portfolio theory, capital asset pricing model, arbitrage pricing theory, and pricing derivatives with binomial tree models. Additionally, this know-how and skills module covers the efficient market hypothesis and optimising portfolio strategies within a binomial tree model. Students will participate in the following learning activities: Lectures: Students will attend a series of lectures designed to introduce learners to the mathematical principles and techniques that underpin this module. Problem-solving: A series of exercise sheets will be given the class and group of students are expected to solve these exercises. Solutions will be presented by the students students in the tutorials. Reading: Students are expected to fully utilise the textbooks and other resources listed below.

Learning Outcomes

1. derive efficient frontiers and find optimal portfolios within the mean-variance portfolio.
2. derive equilibrium relationships for expected rates of return.
3. set up binomial tree models and use it for calculating option prices and optimal portfolio strategies.
4. preparing a short presentation on a selected topic and answer questions on it.

*Type*	*Hours*	*Description*
Workload	Full-time hours per semester
Lecture	36	No Description
Tutorial	12	Presenting tutorial questions which have been solved by the group
Independent Study	140	No Description
Total Workload: 188

All module information is indicative and subject to change. For further information,students are advised to refer to the University's Marks and Standards and Programme Specific Regulations at: http://www.dcu.ie/registry/examinations/index.shtml

Indicative Content and Learning Activities

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(iii,iv,vi)

Discrete Financial Mathematics
Binomial tree model, derivative pricing, Cox-Ross-Rubinstein model, trinomial tree model, autoregressive models, Wilkie model. CT8(vi,viii)

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

Assessment Breakdown
Continuous Assessment	25%	Examination Weight	75%

Type	Description	% of total	Assessment Date
Course Work Breakdown

Reassessment Requirement
Resit arrangements are explained by the following categories; 1 = A resit is available for all components of the module 2 = No resit is available for 100% continuous assessment module 3 = No resit is available for the continuous assessment component
Unavailable

Indicative Reading List

Edwin J. Elton, Martin J. Gruber, Stephen J. Brown, and William N. Goetzmann: 2007, Modern Portfolio Theory and Investment Analysis, 7th, John Wiley & Sons, New York,
John van der Hoek, Robert J. Elliott: 2006, Binomial Models in Finance, Springer, Berlin,
Yannick Malevergne, Didier Sornette: 2006, Extreme Financial Risks: from Dependence to Risk Management, Springer, Berlin,
John C. Hull: 2006, Options, Futures, and other Derivatives, Pearson Prentice Hall, Upper Saddle River,
Robert L. McDonald: 2005, Derivatives markets, Addison-Wesley, Boston and London,
Michael U. Dothan: 1990, Prices in Financial Markets, Oxford University Press, New York,

Other Resources

None

Programme or List of Programmes

BQF	BSc in Quantitative Finance
BSSA	Study Abroad (DCU Business School)
BSSAO	Study Abroad (DCU Business School)
ECSA	Study Abroad (Engineering & Computing)
ECSAO	Study Abroad (Engineering & Computing)
FIM	B.Sc. Financial Mathematics
FM	BSc in Financial & Actuarial Mathematics
HMSA	Study Abroad (Humanities & Soc Science)
HMSAO	Study Abroad (Humanities & Soc Science)
SHSA	Study Abroad (Science & Health)
SHSAO	Study Abroad (Science & Health)
SMPSC	Single Module Professional Science

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