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 module. Pricing methods are introduced via modern techniques, with a strong focus on the intertemporal approach, the so called Capital Asset Pricing Model (CAPM), which now represents the most widely employed approach in financial economic theory on asset pricing. By the end of the course the student has acquired: - a good knowledge of the main pricing techniques of most widely employed financial securities; - 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 make sound decisions in terms of portfolio investments.

Course contents

The course will gradually build the intertemporal asset pricing model by sequentially discussing  the following topics:

1. Fundamental notions of choice under uncertainty.
2. Optimal intertemporal allocations in General Equilibrium.
3. Fundamental notions of dynamic programming.
4. Putting it all together: the Consumption Capital Asset Pricing Model of Lucas.

Readings/Bibliography

A set of typed notes will be supplied by the instructor.

As a complement, the student can consult:

• Chapter 2 in Advanced Microeconomic Theory (3rd ed.) by Jehle and Reny.
• Chapters 2, 3, and 5 in "Microeconomic Theory" by Andreu Mas-Colell, Michael D. Whinston, Jerry R. Green (1995).
• Chapters 1-6 in "Recursive Methods in Economic Dynamics," by Nancy L. Stokey, Robert E. Lucas Jr. and Edward C. Prescott (1989).
• Chapters 1-5 in "Dynamic Macroeconomic Theory," by Thomas J. Sargent (1987).

Teaching methods

The lectures are divided into two complementary parts, Theory and Exercises. The theory part will develop the theoretical platform to price assets. Exercises will be conducted at regular intervals, as a pedagogical aid. There is no required text so you will have to take notes about what we will cover in class (typed notes will be provided, when feasible).

Assessment methods

Your grade will be based on (1) a final exam (70% of your grade), and (2) a class presentation of one paper to be done in pairs of students (30% of your grade). All presentations are in English, will take place on the last week of classes, and must be done in teams of two persons (depending on class size). I will assign papers to each team. Each team will have 20 to 30 minutes (depending on class size). You must submit your presentation slides before the presentation. You will be graded both on the clarity and the content of the presentation.

Office hours

See the website of Gabriele Camera