M400 - Asset Pricing

The bulk of this course takes place in the Lent (i.e. Spring) term. The first 13 hours are devoted to a basic theoretical analysis of asset pricing and general finance. The next 5 hours then look at empirical aspects of the theory covered in the first part. Finally, a 2-hour revision class in the Easter (i.e. Summer) term covers any questions arising from the material in the main part of the course.

A provisional list of topics to be covered is as follows:

• Decision making under uncertainty
• Concepts of risk and risk aversion
• Stochastic dominance
• Portfolio theory
• Static Asset Pricing
• Dynamic Asset Pricing
• Options
• Other Derivatives
• Structural estimation of intertemporal allocation parameters, including risk aversion, subjective discount rates and relative prudence.
• Use of micro data versus aggregate data.
• Estimation of preference-based dynamic asset pricing models
• Estimation of dynamic household portfolio models

This subject is built on microeconomic principles, and a solid understanding of microeconomics is therefore indispensable. A knowledge of linear algebra, calculus and probability theory is assumed throughout the lectures.