Financial economics

This module will provide you with a basic grounding in the fundamentals of finance. The module focuses on a series of topics in financial economics, emphasising both policy relevance and recent research.

You will begin by examining theories and techniques of project appraisal in financial decision-making and will look at models of portfolio selection and asset evaluation.

The efficient market hypothesis and the theory of options and futures pricing will also be introduced. We apply these models to understand the interaction between the financial markets and the wider economy.

Likely topics:  

• an introduction to financial market theory. Investment decision making, risk and return

• the investment decision. NPVand IRR, cash flows and applications, credit rationing, taxation, the role of inflation

• modern portfolio theory. Risk, risk aversion, the Markowitz model, the capital asset pricing model, arbitrage pricing theory, empirical evidence on asset pricing models

• empirical evaluation of asset pricing models. Testing capm and apt, methodological problems

 • market efficiency. Weak, semi‐strong and strong forms, implications of efficient markets for investment policy, empirical evidence and market anomalies

• an introduction to options and futures. Option characteristics, binomial model, black‐scholes option pricing model, option strategies, futures contracts, pricing futures, and hedging.