Course content

The course presents the major insights from financial economics in a way that assumes no previous knowledge of finance but that utilizes the quantitative skills of science and technology students. Topics include the analysis and decomposition of risk and the (Nobel prize winning) methods to price the risk of investments in real and financial assets, including options. The use of real options analysis to value flexibility in investment is extensively discussed. Modern theory of market efficiency is also included. The insights are primarily applied to investment analysis, but also to decision making problems like these: What are the relevant risks in investment decisions and how can they be priced? Should our pension fund pursue an active investment strategy or not? When has flexibility in projects value and how can that value be calculated?

Learning outcome

The course's place and role in the study program: the course is aimed at science and technology students who want to understand how investment decisions regarding projects are made and who want to obtain sufficient knowledge of finance to be able to competently discuss the valuation of projects, including the strategic aspects of future expansion possibilities (real options analysis). The course is intended to convey the following knowledge: General knowledge about the workings of financial markets through arbitrage and equilibrium and markets' role in allocating capital to productive investment opportunities and dividing risk over different capital categories. The course is intended to convey specific knowledge about the analysis and decomposition of risk and methods to price the risk of investments in real and financial assets, including derivatives like options. The course is also intended to convey specific knowledge about the use of real options analysis to value flexibility in investments and modern theory of market efficiency. Practical examples and exercises will help students to develop the necessary skills to apply this knowledge in practical decision making problems regarding investment, financing and risk management, both in a business and a private context. In order to pass the course students must demonstrate sufficient control over the main areas covered in the course: market efficiency and its tests, capital structure and its interactions with investment analysis and the use and pricing of options, including real options.

Learning methods and activities

Lectures and exercises. The course will be taught in English.

Recommended previous knowledge

The course assumes some knowledge of financial calculus (such as present value calculation). Students can acquire this knowledge by studying the non-mandatory part of the course material.

Course materials

To be announced at semester start.

Credit reductions