Course content

This course deals with portfolio theory and the pricing of financial assets. The students learn how to construct portfolios that are mean-variance efficient and how to evaluate portfolio strategies and performance. Modelling of uncertainty is central for valuing financial assets and will be covered in detail. This modelling will be used to value assets both by numerical methods and the martingale approach. The course also introduces the students to pricing using the stochastic discount factor. Known asset-pricing puzzles relating to the equity premium and the risk-free rate will be discussed. Finally, the effect frictions in financial markets have on asset prices will be analyzed.

Learning outcome

Knowledge

You learn

• how frictions affect prices in financial markets
• to construct (optimal) portfolios of risky- and risk-free assets
• how to estimate financial prices by using analytical- and numerical methods

• about empirical puzzles, i.e., empirical facts which are not easily reconciled with theoretical models
• how expected returns, risk, and covariance affect sustainable portfolio choice

Skills

You will know

• how to construct sustainable portfolios
• which pricing methods to choose when pricing financial assets, and being able to use them
• how to analyze how investor characteristics affect financial prices and interest rates
• how to address financial puzzles

General skills

You will know

• how to apply analytical tools to analyze well-known and new financial problems
• why risk is important for the functioning of financial markets and for construction of sustainable portfolios

Learning methods and activities

4 hours of organized learning activities each week. FIN8606 is taught along with FIN3006. Contact the department (kontakt@econ.ntnu.no) to get access to learning resources in Blackboard.

The course has compulsory activity. Specific requirements will be announced at the beginning of the term, and an independent econometric work will be included. Compulsory activity must not be re-completed when repeating the exam.

Compulsory assignments

• Compulsory activity

Recommended previous knowledge

Compulsory courses in Master's degree in Economics.

Required previous knowledge

None.

Course materials

Announced at the beginning of the term.