BE331-6-SP-CO:The Pricing of Securities in Financial Markets

The details
2023/24
Colchester Campus
Spring
Current
Monday 15 January 2024
Friday 22 March 2024
15
16 October 2023

Requisites for this module
BE311 and BE313
BE332
(none)
(none)

(none)

Key module for

BSC N300 Finance,
BSC N301 Finance (Including Foundation Year),
BSC N302 Finance (Including Year Abroad),
BSC N304 Finance (Including Placement Year),
BSC GN13 Finance and Mathematics,
BSC GN15 Finance and Mathematics (Including Placement Year),
BSC GN18 Finance and Mathematics (Including Foundation Year),
BSC GN1H Finance and Mathematics (Including Year Abroad)

Module description

This module involves 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 by practitioners. Similarly, the Black-Scholes formula, along with CRR (Cox-Ross-Rubinstein) binomial model, is often utilized in option pricing in practice.

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 so that the students should be able to appreciate the usefulness and/or the weakness of these models after taking the module.

Module aims

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.

Module learning outcomes

By the end of this module, students will be expected to be able to:

1. Understand the economic concepts associated with the fundamental theorem of asset pricing and to appreciate its usefulness to finance.

2. Understand the mathematics associated with the mean-variance analysis and portfolio choices by rational investors.

3. 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.

Skills for Your Professional Life (Transferable Skills)

1. By studying the theoretical foundations of pricing models students will be able to understand the assumptions used by these models and critically analyse them.

2. 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.

Module information

The module is designed for third year finance students. It may have appeal to accounting and management students possessing a technical bent, to similarly inclined economics students with an interest in financial economics, and to mathematics students interested in financial markets.

Learning and teaching methods

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.

Bibliography

The above list is indicative of the essential reading for the course.
The library makes provision for all reading list items, with digital provision where possible, and these resources are shared between students.

Coursework / exam Description Deadline Coursework weighting
Coursework   TEST
Exam  Main exam: In-Person, Open Book, 120 minutes during Summer (Main Period)
Exam  Reassessment Main exam: In-Person, 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.

Coursework Exam
30% 70%

Reassessment

Coursework Exam
0% 100%
Module supervisor and teaching staff
Dr Luiz Vitiello, email: lrviti@essex.ac.uk.
Dr Luiz Vitiello & Dr Nicholas Rowe
E: ebsugcol@essex.ac.uk

Availability
Yes
Yes
No

External examiner

No external examiner information available for this module.
Resources
Available via Moodle
Of 29 hours, 17 (58.6%) hours available to students:
8 hours not recorded due to service coverage or fault;
4 hours not recorded due to opt-out by lecturer(s), module, or event type.

Further information