The Pricing of Securities in Financial Markets
Essex Business School
Undergraduate: Level 6
Thursday 05 October 2023
Friday 28 June 2024
22 June 2023
Requisites for this module
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BSC N390NS Banking and Finance
This module revolves around the theoretical foundations of some widely used pricing models for securities traded in financial markets i.e. equities, options and bonds. For equities, models such as the Gordon growth model, the Classical CAPM, and the APT are frequently used by applied researchers and practitioners. Similarly, the Black-Scholes formula, along with the CRR (Cox-Ross-Rubinstein) binomial model, are often utilized to price options in the market.
While such applied works take the end product (the model) for granted as a "black box", this module is aimed at explaining the theoretical foundations of these models from a unified viewpoint to enable students to appreciate the usefulness and/or the weakness of these models.
The aim of this module is:
- To provide a rigorous treatment of asset pricing literature including CAPM, and the fundamental theorem of asset pricing and its applications in pricing contingent claims.
By the end of this module, students will be expected to be able to:
- Understand the economic concepts associated with the fundamental theorem of asset pricing and to appreciate its usefulness to finance.
- Understand the mathematics associated with the mean-variance analysis and portfolio choices by rational investors.
- Understand the mechanism of different types of derivatives and to price them, and to be able to establish the relationship between the price of primary securities and those of derivative securities.
The module is designed for third-year finance students. It may appeal to accounting and management students with a technical bent, to similarly inclined economics students with an interest in financial economics, and to mathematics students interested in financial markets.
By studying the theoretical foundations of pricing models students will be able to understand the assumptions used by these models and critically analyse them. This will allow students to appreciate the usefulness and/or the weaknesses of these models, and to understand why sometimes they work/fail in practice. This type of knowledge is particularly useful in areas such as investment banking and asset management.
The primary focus of the module is on the development of problem-solving skills. Students are encouraged to work on the problems discussed in the lectures – otherwise it may be difficult for them to understand the general principles of asset pricing (simply memorising the end results does not provide an understanding of the general principles from which those results are derived). By working on concrete problems students are more likely to be able to understand the general principles.
Class exercises will be announced in advance, and in principle, students may be appointed on site to work on the questions on the whiteboard in the classes. Hence, students are expected to work on all exercises in advance.
This module does not appear to have a published bibliography for this year.
Assessment items, weightings and deadlines
|Coursework / exam
|Reassessment Main exam: Remote, Open Book, 120 minutes during September (Reassessment Period)
Exam format definitions
- Remote, open book: Your exam will take place remotely via an online learning platform. You may refer to any physical or electronic materials during the exam.
- In-person, open book: Your exam will take place on campus under invigilation. You may refer to any physical materials such as paper study notes or a textbook during the exam. Electronic devices may not be used in the exam.
- In-person, open book (restricted): The exam will take place on campus under invigilation. You may refer only to specific physical materials such as a named textbook during the exam. Permitted materials will be specified by your department. Electronic devices may not be used in the exam.
- In-person, closed book: The exam will take place on campus under invigilation. You may not refer to any physical materials or electronic devices during the exam. There may be times when a paper dictionary,
for example, may be permitted in an otherwise closed book exam. Any exceptions will be specified by your department.
Your department will provide further guidance before your exams.
Module supervisor and teaching staff
Dr Luiz Vitiello, email: email@example.com.
No external examiner information available for this module.
Available via Moodle
No lecture recording information available for this module.
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