LUISS

Syllabus

COURSE OBJECTIVES

  • In this course we discuss core topics in financial economics, including: i) linear factor pricing models, such as the CAPM, the Consumption CAPM, the APT (theory and empirical evaluation);  ii) basic option pricing; and iii) the term structure of interest rates.

COURSE CONTENT

  • Linear Pricing Models: Theory: The Mathematics of the Mean-variance Frontier; The Capital Asset Pricing Model (CAPM); the Consumption CAPM (C-CAPM); the Arbitrage Pricing Theory (APT).

Reading: CO, Chapters 5 and 9; DD, Chapters 7, 9 and 13; HL, Chapters 3-4.

  • Linear Pricing Models: Evidence: Roll’s Critique; Time-series Analysis: The GRS Procedure; Fama and French’s Multi-factor Analysis.

Reading: CLM, Chapters 5-6; CO, Chapter 12.

  • Pricing Contingent Claims: Arrow-Debreu Securities and the Term Structure of Interest Rates;
    Risk-neutral Valuation: Risk-neutral Probabilities and Market Completeness; Option Pricing: the Binomial Model.

Reading: CO, Chapter 3; DD, Chapters 8, 10-12, Lecture Notes.

  • Mutual Fund Performance Analysis: Risk-Adjusted Measures of Performance; Selectivity and Market Timing; Portfolio Performance Manipulation; Persistence and Style Analysis.

Reading: Lecture Notes.

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