78173 - Asset Pricing

Learning outcomes

The goal of the course consists in introducing students to a sound knowledge of asset pricing side of Financial Economics, as a necessary complement to the Corporate Finance / Venture Capital side, taught in the Financial Institutions Management course module.  At the end of this course each student can master the pricing notion of the most widely employed securities in financial economics: stocks, bonds, swaps, options.  Pricing methods are introduced via modern techniques, with a strong focus on the intertemporal approach, which now represents the most widely employed approach in financial economic theory on asset pricing.  The intertemporal approach to CAPM (Capital Asset Pricing Model) will allow students to master the ‘deep’ economic grounds of portfolio construction as well as the economic determinants of securities markets.  By the end of this course each student has: i) a good knowledge of the main pricing techniques of most widely employed financial securities; ii) a good understanding of the economic determinants of financial market (both stocks and bonds) fluctuations as well as the main tools to interpret them and making sound decisions in terms of portfolio investments.

Course contents

1. Introduction to main asset pricing questions.  Equity: pricing, returns, dividends. The impact of time horizon.

2. Bond Pricing  and analysis.  Duration, Convexity.

3. The linear modelling of financial returns. Theory and Empirics.  Matlab applications.

4. A gentle introduction to derivative contracts: swaps.

5. Options

6. Dynamic modelling in finance: intertemporal optimization.  The equity premium  

7. The Intertemporal CAPM and Hansen-Jagannathan bound. 

8. Possible solution to the Equity Premium Puzzle: the role of non-standard preferences. 

9. The term structure of interest rates: Affine Models and Nelson-Siegel Approach

Readings/Bibliography

The main textbookd is by John Cochrane: Asset Pricing, latest Edition MIT Press.

Additional references will be provided at the beginning of the course, as well as additional teaching material.

Teaching methods

In class lectures and exercises with Matlab.

There will be homeworks based on the material taught in class and on the readings.

Assessment methods

Problem Sets. 

For the final task, additional details will be provided during the first lecture.

Teaching tools

In-class lectures.  For the most part of lectures there will be the support of slides and lecture notes.

Office hours

See the website of Massimiliano Marzo