Jamal Munshi PhD, All rights reserved
Finance is essentially the study of risk and of investor choices in risk-return space. In this course we address this question head-on. We also introduce the students to the no-arbitrage principle (NAP) of Finance and apply it to fixed income securities and derivatives. Students use NAP to price futures and the binomial model to price options and gain a depth of conceptual understanding of securities and their markets. Students are expected to have completed courses in the fundamentals of finance, accounting, and statistics. The course is quantitative in nature and it requires proficiency in mathematics and in Microsoft Excel. Proficiency in written English is also important.
Robert A Taggart, Jr, Quantitative Analysis for Investment Management
Prentice Hall, ISBN 0133196909
There are 8 class meetings on 8 consecutive weeks, one day per week, and one scheduled final examination period.
There may be up to three activities per meeting
Activity #1: Quiz on previous topic: 1 hour
Activity #2: Lecture on new topic: 1.5 hours
Activity #3: Workshop on new topic: 1.5 hours
Workshop #1: Coupon bonds and strip market arbitrage.
To prepare for workshop #1 please read chapter 1.
Quiz #1: Strip market arbitrage.
Workshop #2: Bond duration and interest rate futures.
To prepare for workshop #2 please read chapters 2 and 3.
Quiz #2: Interest rate risk
Workshop #3: The DCF model for stock valuation.
To prepare for workshop #3 please read chapter 4.
Quiz #3: Stock valuation.
Workshop #4: The binomial option pricing model.
To prepare for workshop #4 please read chapter 5.
Quiz #4: Option pricing.
Workshop #5: Portfolio theory and utility maximization.
To prepare for workshop #5 please read chapters 9 and 10.
Quiz #5: Portfolio theory.
Workshop #6: CAPM.
To prepare for workshop #6 please read chapters 10 and 11.
Quiz #6: CAPM.
Workshop #7: Portfolio management.
To prepare for workshop #7 please read chapter 12.
Quiz #7: Portfolio management.
Workshop #8: Evalutation of portfolio performance.
To prepare for workshop #8 please read chapter 13.
Scheduled final examination period
Quiz #8: Evalutation of portfolio performance.
Semester project (select one)
Excel model for stock option pricing: report and presentation
Excel model for portfolio utility maximization: report and presentation
The class is divided into groups. Workshops and semester projects are group assignments. They are carried out cooperatively by group members working as a team. The instructor serves as an ex-officio member of each group. Quizzes and examinations are individual assignements. Please do these on your own. You are expected to complete your quiz without using your book or notes. Please turn in your workshop before you take the quiz. For group assignments submit one paper per group. For individual assignments submit one paper per student.
Missed workshops and quizzes
Once per term, the student may carry the weight of a missed workshop forward to the next workshop. Once per term, the student may carry the weight of a missed quiz forward to the next quiz. There is no provision for make-up workshops or quizzes.
Evaluation of learning
8 Workshops x 4 points each = 32 points
8 In-class short quizzes x 8 points each = 64 points
Semester project = 4 points
Total = 100 points
Letter grade: 90-100 = A, 80-90 = B, 75-80 = B-, 60-75 = D, else F
After completing this course you should be able to