Registry
Module Specifications
Archived Version 2012 - 2013
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Description Students will learn how to use standard financial economic methods for investment decisions and option pricing in a discrete and continuous time setting. The methods include mean-variance portfolio theory, capital asset pricing model, arbitrage pricing theory, and pricing derivatives with binomial tree models. These topics will also be discussed from a real-world financial markets perspective Students will participate in the following learning activities: Lectures: Students will attend a series of lectures designed to cover the syllabus objectives of subject CT8 of the Institute of Actuaries (along with MS428). Tutorials: Tutorials will cover working through past exam papers and will also cover Excel skills | |||||||||||||||||||||||||||||||||||||||||
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Learning Outcomes 1. Be able to describe, discuss and explain the topics in the Syllabus Objectives (i) - (vii) of CT8 of the Institute & Faculty of Actuaries along with performing calculations to apply the theories covered 2. Be able to discuss the relative merits of the CT8 material from a real-world financial markets and actuarial perspective | |||||||||||||||||||||||||||||||||||||||||
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 |
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Indicative Content and
Learning Activities .Units 1 - 7 and 9 - 10 of the CT8 Core Reading of the Institute & Faculty of Actuaries:Introduction to Financial EconomicsIntroduction to Financial Economics and the relationship between Economics and Financial EconomicsHistory of Financial EconomicsDiscussion of the History of Financial Economics from 1900 to the present, Explanation of Background to Each Development, Discussion of Academic and Practioneers Viewpoints Towards the Theory, Discussion of Actuarial Views in relation to Financial Economics.Utility TheoryBackground, J.S. Mill, Expected Utility Theorem, Axioms and Implications, Utility Functions, Characteristics of Investors, Performing Calculations to Maximize Expected Utility, First and Second-Order and Absolute Dominance (CT8 (i))Investment RiskVariance of Return, Downside Semi-Variance of Return, Shortfall Probabilities, Value at Risk (VaR) and Tail VaR, Relationship Between Measures of Risk and the Investors Utility Function, Performing Calculations using the Risk Measures to Compare Investments, Discussing the Real World Application of these Measures, Influence of Distribution of Returns and Thickness of Tails (CT8 (ii))Mean-Variance Portfolio TheoryMean-Variance Portfolio Theory, Assumptions of the Theory, Conditions Under Which the Theory Leads to Optimum Portfolio Selection, The Benefits of Diversification, Calculating Expected Returns, Risk on a Portfolio and Covariances (CT8 (iii))Single and Multifactor Models of Asset ReturnsMultifactor Models of Asset Returns including Macroeconomic Models, Fundamental Factor Models, Statistical Factor Models, Single Factor Model, Diversifiable and non-Diversifiable Risk, Construction of Multifactor Models, Performing calculations for Single and Multifactor Models (CT8 (iv))Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Theory (APT)Capital Asset Pricing Model (CAPM) - its Assumptions, Principal Results and Limitations, Attempts to Overcome These Limitations, Arbitrage Pricing Theory (APT) - its Assumptions, Principal Results and Limitations. Uses and Application of CAPM and APT in the Real World. Performing Calculations using CAPM. (CT8 (v))Efficient Market Hypothesis (EMH)Efficient Market Hypothesis (EMH) - its Three Forms and Evidence For and Against the Hypothesis, The Consequences of EMH, Applying the EMH to Real World Markets, Theories of Inefficient Markets. Actuarial and Investment Viewpoints Towards EMH (CT8 (vi))Stochastic Models of the Behaviour of Security PricesThe Continuous Time Log-normal Model of Security Prices, Empirical Evidence For and Against the Model, Auto-regressive Models of Security Prices, Strengths, Weaknesses and Alternatives to these Models, Performing Calculations based on these Models, Discussing the Issues in Estimating the Parameters for these Models (CT8 (vii))Introduction to the Valuation of Derivative SecuritiesIntroduction to the Valuation of Derivative Securities, Arbitrage, Complete Markets, Greeks (Factors Affecting Option Prices), Valuing a Forward Contract, Upper and Lower Bounds for Option Prices, Put-Call Parity (CT8 (ix) 1-3)Binominal ModelIntroduction to the Binomial Model, Performing Calculations Based on a Binomial Model | |||||||||||||||||||||||||||||||||||||||||
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Indicative Reading List
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Other Resources None | |||||||||||||||||||||||||||||||||||||||||
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