Module ECON412JN: ADVANCED FINANCIAL THEORY

Department: Economics and Finance

ECON412JN: ADVANCED FINANCIAL THEORY

Prerequisites

• One module at a level equivalent to a second year British Honours Degree standard, covering statistics and in particular covering at least probability theory and distributions as well as hypothesis testing.

Corequisites

• Econometrics I (ECON415JN) OR Econometric Methods (ECON478JN)

Excluded Combination of Modules

• None

Aims

• to provide a rigorous training in the theory of modern finance at an advanced level and a thorough synthesis of the most important current research in finance, with an emphasis on the applications of the principles.
• to provide students with an advanced understanding of normative and positive research in financial theory, together with supporting descriptive and empirical evidence.

Content

• Students are exposed to the frontier of theoretical and applied research in the module, as well as seminal papers. Topics are indicatively covering:
• The Role of Financial Theory and undertaking research in Finance;
• Capital Markets, Consumption and Investment;
• The Theory of Choice under Uncertainty and Valuation Theories;
• Portfolio Theory;
• Equilibrium Asset Pricing Models I - CAPM and its recent developments;
• Equilibrium Asset Pricing Models II – tests of the CAPM; ICAPM and CCAPM;
• Equilibrium Asset Pricing Models III – APT and its testing;
• Capital Market Efficiency, Market Anomalies and Behavioural Finance;
• Pricing of State Contingent Claims, the Arbitrage Theorem and Continuous Time Valuation;
• Derivative Instruments and Option Valuation.
• Within topics, research questions and hypotheses in finance are posed. Guidance is provided on how to methodologically approach these questions by using the theoretical and empirical research techniques presented in the lecture. In the context of each lecture, students are provided with hands-on guidance on how to access relevant literature and data sources and on the methodological approaches they need to undertake in order to address these questions. Students use library facilities in reviewing the research literature in finance, in particular for student participation in seminars.

Learning Outcomes

• have advanced knowledge and critical understanding of essential components of modern finance theory and associated current research;
• have explored, understood and appreciated the complexity and contradictions of the current academic literature and its implications for professional practice, and be able to identify open questions for their own research, making use of available facilities;
• have the ability to learn and work independently in finance, exercising critical judgement and discrimination in the resolution of complex problematic situations, including appropriate techniques of analysis.

• be able to use highly specialised and advanced technical, professional and academic research skills in the analysis of relevant specific problems in finance;
• be able to apply problem solving and analytical skills of research to issues in finance in a complex specialised context.

• Written Communication;
• Planning, Organising and Time Management;
• Problem Solving and Analysis;
• Using initiative;
• Numeracy;
• Computer Literacy.

Modes of Teaching, Learning and Assessment and how these contribute to the learning outcomes of the module

• A combination of lectures, seminars and guided reading will contribute to achieving the aims and learning outcomes of this module.
• The summative written examination will test students' knowledge and critical understanding of the material covered in the module, their analytical and problem-solving skills.
• The formative assessment consists of 25 theoretical and computational problems and is given to students after the first five weeks of the course. The formative assessment is administered electronically on DUO and allows students to receive timely feedback on their work in order to identify areas of individual strengths and weaknesses.

Teaching Methods and Learning Hours

Summative Assessment

Formative Assessment:

The formative assessment consists of 25 theoretical and computational problems and is given to students after the first five weeks of the course. The formative assessment is administered electronically on DUO and allows students to receive timely feedback on their work in order to identify areas of individual strengths and weaknesses.

■ Attendance at all activities marked with this symbol will be monitored. Students who fail to attend these activities, or to complete the summative or formative assessment specified above, will be subject to the procedures defined in the University's General Regulation V, and may be required to leave the University