GRA 6543 Introduction to Asset Pricing
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APPLIES TO ACADEMIC YEAR 2016/2017 |
GRA 6543 Introduction to Asset Pricing
Responsible for the course
Håkon Tretvoll
Department
Department of Finance
Term
According to study plan
ECTS Credits
6
Language of instruction
English
Introduction
The course provides an introduction to financial economics at the MSc level. The course will begin by introducing asset pricing theory. The classical results in portfolio selection and asset pricing theory with the mean-variance paradigm are presented. These results will be challenged and thus further theoretical developments based in the Arbitrage Pricing Theory and Consumption CAPM will be considered. Issues in market efficiency and behavioral finance will be discussed. Finally, application of the theory to option pricing will be considered. This course will provide students with an understanding of the underlying theories used in other courses and some of the empirical approaches to testing these theories.
Learning outcome
Acquired knowledge
After taking the course, the students shall understand how economists build economic models of asset prices, what the key implications and predictions of these models are and how they help us to understand why and how asset prices move. Furthermore, student should know how to test asset pricing models and interpret tests of asset pricing models using real world data.
- Examples of concepts that students shall be able to explain: utility maximization, optimal investment and consumption decisions, risk aversion, decision making under risk, choices between risky alternatives, choices between risk free and risk alternatives, optimal portfolio allocation, determination of expected returns, risk-neutral pricing, and market efficiency.
Acquired skills
After taking the course, the students shall be able to (a) apply knowledge (i.e. concepts and skills) in analyses and discussions on problems that arise in decision making in the presence of risk. Examples:
- Optimal choices under risk
- Pricing financial assets
Reflection
After taking the course, the students shall be able to ask critical questions and reflect on crucial assumptions and theories within the field of asset pricing.
Prerequisites
All courses in the Masters programme will assume that students have fulfilled the admission requirements for the programme. In addition, courses in second, third and/or fourth semester can have spesific prerequisites and will assume that students have followed normal study progression. For double degree and exchange students, please note that equivalent courses are accepted.
Compulsory reading
Books:
Bodie, Zvi, Alex Kane, Alan J. Marcus. 2014. Investments. 10th global edition. McGraw-Hill Education
Copeland, Thomas E., J. Fred Weston and Kuldeep Shastri. 2013. Financial theory and corporate policy. 4th rev. ed. Pearson Addison-Wesley
Other:
During the course there may be hand-outs and other material on additional topics relevant for the course and the examination.
Recommended reading
Books:
Copeland, Thomas E., J. Fred Weston and Kuldeep Shastri. 2005. Student Solutions Manual for Financial Theory and Corporate Policy. 4th ed. Pearson Addison-Wesley
Course outline
1. Arbitrage and Optimality
a) Consumption and investment decisions
b) Utility theory given uncertainty
c) State preference theory
2. Asset Pricing
a) Portfolio theory
b) The Capital Asset Pricing Model
c) The Arbitrage Pricing Theory
d) Risk-Neutral Valuation
e) The Consumption CAPM
3. Market Efficiency
a) Active vs. Passive Management
b) Behavioral Finance
4. Derivative Pricing
Computer-based tools
Learning process and workload
A course of 6 ECTS credits corresponds to a workload of 160-180 hours. The instruction consists of 36 lecture hours. The remainder of the workload is allocated to the student to work on the readings provided in class.
Please note that while attendance is not compulsory in all courses, it is the student’s own responsibility to obtain any information provided in class that is not included on the course homepage/It's learning or text book.
Examination
Two hour mid-term exam -30%
Three hour final exam - 70%.
| Form of assessment | Weight | Group size |
| Written examination 2 hours | 30% | |
| Written examination 3 hours | 70% | |
Specific information regarding student assessment will be provided in class. This information may be relevant to requirements for term papers or other hand-ins, and/or where class participation can be one of several components of the overall assessment. All parts of the assessment must be passed in order to get a grade in the course. Candidates may be called in for an oral hearing as a verification/control of written assignments.
Examination code(s)
GRA 65432 2-hours written mid-term examination accounts for 30% of the final grade in the course GRA 6543
GRA 65433 final 3-hours written examination accounts for 70% of the final grade in the course GRA 6543
Both parts of the evaluation must be passed in order to get a grade in the course.
Examination support materials
BI approved exam calculator
Bilingual dictionary
Permitted examination support materials for written examinations are detailed under examination information in the student portal @bi. The section on support materials and the use of calculators and dictionaries should be paid special attention to.
Re-sit examination
It is only possible to retake an examination when the course is next taught. The assessment in some courses is based on more than one exam code. Where this is the case, you may retake only the assessed components of one of these exam codes. All retaken examinations will incur an additional fee. Please note that you need to retake the latest version of the course with updated course literature and assessment. Please make sure that you have familiarised yourself with the latest course description.
Additional information
Honour code. Academic honesty and trust are important to all of us as individuals, and are values that are integral to BI's honour code system. Students are responsible for familiarising themselves with the honour code system, to which the faculty is deeply committed. Any violation of the honour code will be dealt with in accordance with BI’s procedures for academic misconduct. Issues of academic integrity are taken seriously by everyone associated with the programmes at BI and are at the heart of the honour code. If you have any questions about your responsibilities under the honour code, please ask. The learning platform itslearning is used in the teaching of all courses at BI. All students are expected to make use of itslearning.