Financial Markets, 7.5 credits

Main field of study with advanced study

Economics (1-30) 30 credits. English 6.

The course is included in Business Administration and Economics Programme and is given as a single subject course.

The aim of the course is that the student should deepen his / her knowledge in the subject area financial economics. The focus is on how the financial markets are structured and how they work in theory and practice. Portfolio theory is a central part of the course, but also interest-bearing instruments as well as derivative instruments are covered during the course.

On completion of the course the student should be able to:

Knowledge and understanding

• explain thoroughly the basic concepts within financial economics, as well as explain in detail how financial markets and institutions work and what role they play in a market economy.
• explain in detail the different models for pricing basic financial instruments such as bonds and shares, as well as accounting for different equilibrium models in the portfolio selection theory (CAPM, APT).
• understand the basic functions of futures and options, as well as understand how futures and options are theoretically priced primarily in the binomial model, but also in the Black-Scholes pricing model.

Skills and ability

• make independent calculations to construct mean-variance efficient portfolios with suitable software and empirical data, as well as analyze and interpret the results of their calculations and tests.
• independently apply different strategies to hedge risk using options and futures.

Judgement and approach

• develop the ability for further studies on the subject, as well as seeking and developing information with a high degree of independence. The student should also develop the ability to write an empirically oriented essay.

The course begins with a general description of financial markets and their structure. Furthermore, the course deals with theories for pricing financial assets on well-developed capital markets. The basis for pricing models is the different models of portfolio selection theory. The portfolio models covered are CAPM and APT and their empirical equivalents Single Index and Multi Index models. Other areas covered in the course are theories of effective markets, bond pricing, and the theoretical valuation of European and American options. The course also shows the price limits within which option prices must be available during the term of the option, assuming the market is arbitrage free.

Teaching consists of lectures, exercises and laboratory exercises.

Examination takes place partly in the form of an laboratory assignment performed in groups, partly through a individual final examination that deals with course literature, lectures, exercises and other material.

If there are special reasons, the examiner may make exceptions from the specified examination format and allow a student to be examined in another way. Special reasons can e.g. be study support for students with disabilities.

Course evaluation is part of the course. This evaluation offers guidance in the future development and planning of the course. Course evaluation is documented and made available to the students.