Asset Pricing Theory
|Unit level:||Level 7|
|Teaching period(s):||Semester 1|
|Offered by||Alliance Manchester Business School|
|Available as a free choice unit?:||N
- To gain a good understanding of the main theories and techniques of modern asset pricing.
- To follow the derivation of the Capital Asset Pricing Model and the Black-Scholes option pricing model.
- To appreciate the applications of these theories in portfolio analysis, risk management and corporate finance.
- To develop analytical skills for use in Finance.
Topic 1: Mean-variance portfolio analysis and the CAPM
Topic 2: Asset Pricing: A complete markets model
Topic 3: Option Pricing and Risk-Neutral Valuation
Topic 4: Multi-Period Asset Pricing
Topic 5: Forward and Future Prices
On completion of this unit successful students will have achieved the following learning outcomes:
- Understand and be able to apply the main techniques of modern asset pricing.
- Understand the main assumptions of the Capital Asset Pricing Model and be able to derive the main steps of the model.
- Appreciate the most important applications of the model.
- Understand how the model applies in a multi-period world.
- Understand the principle of risk-neutral valuation and be able to derive the Black-Scholes option pricing model.
- Appreciate the difference between forward contracts and futures contracts.
- Understand the pricing of forward and futures contracts.
Assessment Further Information
Set of Exercises (10%)
Written Examination (90%)
Poon and Stapleton, Asset Pricing in Discrete Time: A Complete Markets Approach, Oxford UP, 2005
Copeland, Weston and Shastri, Financial Theory and Corporate Policy, 4th International edition, Prentice Hall, 2005
For a review of some basic mathematical techniques that are used in financial theory see Copeland and Weston, appendix B, D. For a review of the properties of the normal distribution see Stapleton and Poon: Appendix of Chapter 3.
Selection of seminal academic papers for each topic (provided by the course coordinator)
Informal advice and discussion during a lecture, seminar, workshop or lab.
Responses to student emails and questions from a member of staff including feedback provided to a group via an online discussion forum.
Written and/or verbal comments on assessed or non-assessed coursework.
- Assessment written exam - 2 hours
- Lectures - 22 hours
- Independent study hours - 126 hours