[Forside] [Hovedområder] [Perioder] [Udannelser] [Alle kurser på en side]
LEARNING OBJECTIVES:
On successful completion of the course, the students are able to:
· Describe, interpret, and compare general models of financial asset prices formulated in one-period, in discrete-time, and in continuous-time diffusiontype frameworks
· Describe, explain and reflect on the concepts of no arbitrage, redundant assets, and complete markets
· Describe the concept of state prices and explain and evaluate their main properties and implications for asset pricing
· Relate state prices to risk-neutral probabilities
· Describe, compare, and evaluate typical representations of individual references in finance models
· Describe typical models of individuals' consumption and portfolio choice
problems, explain how such problems can be solved and what the consequences are for financial asset prices
· Describe, explain and reflect on the concepts of efficient risk-sharing, Paretoefficiency, representative agents, and market completeness in a one-period framework
· Explain how various versions of the consumption-based CAPM can be derived
· Explain and analyse typical asset pricing puzzles
· Describe, explain, and compare various extensions of the simple consumption-based CAPM and reflect on their ability to explain asset pricing puzzles
· Describe the concept of pricing factors and relate them to state prices
· Describe and analyse various concrete factor pricing models, including various versions of the intertemporal CAPM
· Reflect on the general implications of asset pricing theory for the shape and dynamics of the term structure of interest rates
· Explain the relation between nominal and real interest rates reflect on how various popular dynamic term structure models can be founded in general asset pricing theory.
COURSE DESCRIPTION:
The course provides the students with a thorough
knowledge of key concepts, relations, and models in general capital market theory. The course introduces formal representations of individuals and their preferences, assets and portfolios, and reasonable pricing systems in multi-period discrete-time and continuous-time settings. The prices of financial assets are linked to the individuals' optimal consumption choice, which leads to the Consumption-based Capital Asset Pricing Model. The empirical validity of consumption-based models is discussed and so are various factor models of asset pricing. The consequences of the general asset pricing results for derivatives and the term structure of interest rates are also discussed. Finally, the dynamic consumption and portfolio choice problems faced by individuals are introduced with a focus on the implications for asset prices.
COURSE SUBJECT AREAS:
- Multi-period modelling
- State prices
- Preferences under uncertainty; expected utility, risk aversion
- Optimal consumption and portfolio decisions of individuals
- Market completeness, efficient risk-sharing, Pareto-efficiency, representative agents
- Consumption-based asset pricing models
- Asset pricing puzzles
- Factor models of asset pricing
- Economics of the term structure of interest rates.
REQUIRED COURSES:
4388: Derivatives and risk management
Claus Munk
TEACHING METHOD:
Lectures and discussion of cases.
LITERATURE:
Munk, Claus: "Financial Asset Pricing Theory", Lecture notes, Aarhus University, 2009
Articles and lecture notes.
Total number of pages not exceeding 800.
FORM OF ASSESSMENT:
Oral exam (20 mins. exam with 20 mins. for preparation)
Examination requirements: Before taking the oral exam the student has to pass two assignments. The two assignments have to be passed in the same semester. Assignments are only offered in the term where the course is taught. The assignments are to be solved in a group of two or three students unless the lecturer explicitly grants an exemption. The assignments are evaluated internally on a pass/fail basis. The purpose of the assignments is to test the student in one or more learning objectives in depth, in particular in topics not well-suited for the oral examination. The oral exam tests the student's ability to meet the learning objectives by random check.
Participation in the reexamination is conditional on participation in the preceding ordinary examination.
EXAMINATION AIDS ALLOWED: All
