FIN42000 Financial Theory

Academic Year 2022/2023

The course offers an in depth introduction to the theoretical foundations of modern financial economics, with a focus on investments and capital markets, along with how to apply these results in practice.
The course will cover the central themes of modern investment finance including individual investment choice theory, equilibrium asset pricing, basic option pricing (time permitting) and the practical application of the methods corresponding to these areas.
Upon completion of this course, students are expected to have a clear understanding of established thinking concerning individuals’ consumption and portfolio decisions under uncertainty and the implications of these for the valuation of securities, plus the ability to formulate and numerically optimise basic problems in Financial Decisionmaking

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Curricular information is subject to change

Learning Outcomes:

Upon completion of this module, students should be able to:

Describe and apply fundamental principles and concepts in Investment Finance
Use key skills in financial decision making, including knowing how to use 'hands-on' computational optimisation tools
Contrast fundamental asset pricing theories and understand the crucial role of Information Sets
Critically assess financial theories and models of Investment
Appraise the tradeoff between risk and return.
Demonstrate research skills such as the use of computational optimisation tools and the understanding of published research, both practical and theoretical.

Indicative Module Content:

Topic 1: An Introduction to Mean-Variance Portfolio Theory in Investments and
Computational Methods for Constrained Optimisation (in Julia), plus the CAPM
and APT.

Topic 2: Review of the Microeconomic Foundations of Financial Economics
Consumption and Investment without and with Capital Markets

Topic 3: Investment Decisions: The Certainty Case
Fisher Separation Theorem
Shareholder Wealth Maximisation

Topic 4: Making Choices in Risky Situations
Utility Theory
Risk Aversion
Stochastic Dominance
State Preference Theory
Mean Variance Portfolio Theory (Revisited)

Topic 5: Equilibrium Pricing
Capital Asset Pricing Model (Revisited)
Arbitrage Pricing Theory (Revisited)

Topic 6: (time permitting) Fundamentals of Derivatives Pricing

Student Effort Type Hours
Specified Learning Activities

18

Autonomous Student Learning

68

Lectures

18

Tutorial

6

Total

110

Requirements, Exclusions and Recommendations

Not applicable to this module.


Module Requisites and Incompatibles
Not applicable to this module.
 
Assessment Strategy  
Description Timing Open Book Exam Component Scale Must Pass Component % of Final Grade
Class Test: Midterm Quiz - Timing and Format TBA
[Likely will include MCQ]
Unspecified n/a Alternative non-linear conversion grade scale 50% No

20

Group Project: A set of 3 separate assignments, each of which must be satisfactorily submitted in draft form individually by students for eligibility to receive the Group mark. Group submission will be a Consensus Varies over the Trimester n/a Alternative linear conversion grade scale 40% No

30

Examination: Combined Multiple Choice and Short essay. Students are required to show that they understand and are able to apply as well as critically evaluate materials and theory presented in the module. 2 hour End of Trimester Exam No Alternative linear conversion grade scale 40% No

50


Carry forward of passed components
Yes
 
Resit In Terminal Exam
Spring Yes - 1 Hour
Feedback Strategy/Strategies

• Group/class feedback, post-assessment

How will my Feedback be Delivered?

After each assessment the lecturer will provide group feedback to students.

Required Text:

Financial Theory and Corporate Policy: Pearson New International Edition, 4/E
Thomas E. Copeland, J. Fred Weston, Kuldeep Shastri, (CWS) (ISBN: 9781292021584)

Required Software

Before the first class, students should download and install the Julia programming language (current stable release v 1.80):
https://julialang.org/downloads/

We will begin using Julia as a standalone package, but students are advised to download Visual Studio Code (VSCode) for use later.

https://code.visualstudio.com/download

No prior programming or language is assumed, but students should bring laptops to class.
The basics of Getting Started with Julia will be demonstrated in class.





Name Role
Xiaomeng Wang Tutor
Martyn Zeman Tutor
Autumn
     
Lecture Offering 1 Week(s) - 7 Fri 08:30 - 10:20
Lecture Offering 1 Week(s) - 9, 10, 11, 12, 13 Mon 13:30 - 15:20
Tutorial Offering 1 Week(s) - 8, 9, 10, 12 Thurs 11:00 - 11:50
Tutorial Offering 1 Week(s) - 11 Tues 08:30 - 09:20
Lecture Offering 1 Week(s) - 8, 9, 10, 11, 12 Tues 09:30 - 10:20
Lecture Offering 1 Week(s) - 13 Tues 14:00 - 15:50
Lecture Offering 2 Week(s) - 7 Fri 08:30 - 10:20
Lecture Offering 2 Week(s) - 9, 10, 11, 12, 13 Mon 11:00 - 12:50
Lecture Offering 2 Week(s) - 8, 9, 10, 11, 12 Tues 11:00 - 11:50
Tutorial Offering 2 Week(s) - 8, 9, 10, 11, 12 Tues 12:00 - 12:50
Lecture Offering 2 Week(s) - 13 Tues 14:00 - 15:50
Autumn
     

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