|Assessment length / details
|2 Hours In-class test
|2 Hours Test
On successful completion of this module students should be able to:
1. Describe, explain and illustrate: the characteristics, attributes, uses, valuation, behaviour, trading and development of key investment instruments; the investment problem and investment decision making; and investment risk management.
2. List, describe, explain, illustrate, compare and contrast alternative investment instruments; perspectives on and measures of return/yield and risk; approaches to investment asset pricing; and types/forms of market efficiency.
3. Cite, explain, select and apply appropriate theory and models to solve related questions and numerical problems.
4. Derive, assess and criticize selected investment theory models.
5. Integrate different forms of analysis in order to generate a well-reasoned and holistic assessment of investment and risk management opportunities.
This module provides a thorough treatment of: (i) the characteristics, attributes, uses, valuation, behaviour, trading and development of key investment instruments; (ii) the investment problem and investment decision making; and (iii) investment risk management. From a foundation in theory, we use discursive and numerical approaches to unlock this fascinating area. The themes of value, return and risk run throughout the module.
Characteristics and risks
Value sensitivity to rate changes
Bond portfolio immunization
TERM STRUCTURE OF INTEREST RATES
The yield curve
Pure expectations theory
Liquidity preference theory
Market segmentation theory
EQUITY SECURITIES AND PORTFOLIO THEORY
Equity return measures
Accounting returns and market-based returns
Total risk measure
Risk-return paradigm, risk aversion, dominance
Combining risky assets, the Markowitz frontier
Risk free asset, capital market line, market portfolio
Risk-averse investor’s portfolio choice
CAPITAL ASSET PRICING MODEL AND ARBITRAGE PRICING THEORY
Systematic risk measure, diversification
Derivation of the CAPM, security market line
Determination and stability of beta
Wider CAPM-family models
Arbitrage pricing model assumptions and factors
Principle of arbitrage, arbitrage portfolio, arbitrage action
Underlyings, derivative types and classification
Option payoff diagrams, binomial diffusion diagrams
The binomial optional pricing model
Valuation of options: binomial method, Black-Scholes
Put-call parity relationship
Forwards, futures, swaps, credit default swaps a, warrants
Interest/exchange rate parity relationships
Market efficiency and the efficient markets hypothesis
Testing the different forms of the EMH
PROCESS: FINANCIAL INNOVATION AND TRADING
Innovation in financial instruments
Trading and market microstructure
|Application of Number
|- Develop an easy familiarity with numerical data sources and numerical data. - Apply numerical data to problem solving with care and accuracy. - Assess the reasonableness of and interpret numerical solutions. - Support assertions/arguments with appropriately developed and presented numerical data. - Calculate and use descriptive statistics. - Apply mathematical formulae.
|- Develop confidence in and clarity of oral communication via example class/tutorial participation. - Develop clarity and focus of written communication via development of answers to self study questions. - Develop and use appropriate subject-specific vocabulary in oral and written communication.
|Improving own Learning and Performance
|- Identify and distil the key issues covered by lectures, tutorials and self study. - Identify and use a range of learning resources. - Investigate benefits of small group working on self study. - Structure study to accommodate intensive learning.
|- Use a variety of electronic web- and library-based resources to review available information and retrieve pertinent information. - Use spreadsheet software to complete elements of the self study (e.g., for ease of tabulated numerical calculations, production of summary statistics, production of graphs, etc.)
|Personal Development and Career planning
|- Develop skills in investment analysis, portfolio selection and risk management which are useful/essential in a number of different occupations; and in personal financial planning and management. - Identify a variety of potential career opportunities within the financial and professional services sector.
|- Identify the precise problem to be solved. - Assess which data are pertinent to the problem. - Recognize that alternative solution methods might be available. - Select and apply appropriate methods for solving the problem. - Assess the reasonableness of problem solutions and interpret those solutions.
|- Identify which information sources are available to: facilitate module study (understanding, wider reading). provide data which allow application of module learning in a real world context. - Properly reference/attribute information sources.
|Subject Specific Skills
|- Develop competence in understanding and appropriately applying investment/financial mathematics. - Develop competence in understanding and quantifying return/yield and risk; in analyzing the relationship between return and risk; and in managing risk.
|Develop experience of team work and develop team working skills via small group working on self study.
This module is at CQFW Level 6