Seminar: Asset Prices and Financial Markets (F)

Course content

This seminar is intended to give students the opportunity to explore in greater detail and possibly also extend some of the models and topics introduced in other finance courses offered by the department. Students are expected to write a paper falling within one of the following four categories: Asset Pricing, Portfolio Theory, Pricing of Derivatives, The Term Structure of Interest Rates and Interest Rate Derivatives. The courses in microeconomics and the courses: Financial Decision Making, Financial Econometrics A and B as well as Advanced Empirical Finance are particularly relevant for students writing within either “Asset Pricing” or “Portfolio Theory”. The courses Financial Econometrics A and B, Advanced Empirical Finance, Financial Theory and Models, and Pricing Financial Assets are particularly relevant to students writing within “Pricing of Derivatives “. Finally, the courses Financial Theory and Models, and Fixed Income Derivatives: Risk Management and Financial Institutions are relevant should students writing within “The Term Structure of Interest Rates and Interest Rate Derivatives”.

 

The aim of this seminar is to introduce students to a wide range of the most important models used by academics and practitioners alike to describe the behavior of financial markets. During the semester, students will choose a particular model and write a paper exploring the details and most important aspects of this model. Students are free to decide if they wish to pursue a purely theoretical approach or if they also wish to do some empirical analysis using a software and/or programming language of their choice. Students are expected to choose a model falling within one of the following four categories: Asset Pricing, Portfolio Theory, Pricing of Derivatives, The Term Structure of Interest Rates and Interest Rate Derivatives. Throughout this semester, we will examine some of the most important topics in finance and discuss how best to model financial markets. We will discuss theoretical aspects of these models, how they can be implemented in practice as well as the model´s ability to capture the behavior of financial markets in practice. During the first two weeks of the semester, students will be given an overview of each of the four topics including relevant literature so that students will better be able to choose a topic for their paper. Below is a list of the four categories mentioned above including some topics within each category that can be discussed in a seminar paper.

Asset Pricing
The CAPM model and its various extensions, multi-factor models, asset return predictability and the efficient market hypothesis, consumption based asset pricing.

Portfolio theory
Optimal portfolio allocation in a static setting, optimal portfolio choice in a dynamic setting, optimal portfolio choice in consumption based models, portfolio risk and dynamic hedging, stochastic optimal control.

Pricing of Derivatives
Stochastic volatility models, jump-diffusion models, local volatility models, implied volatility, fitting option pricing models to market data, dynamic market models, numerical computation of option prices (Monte Carlo simulation, tree based methods, numerical solution of the relevant PDE/ODE or Fourier methods), complex derivatives (American options, Asian options, barrier options, look-back options).

Term Structure of Interest Rates and Interest Rate Derivatives
Models for the term structure of interest rates, short rate models (Vasicek, Ho-Lee, Black-Derman-Toy, CIR or Hull-White), forward rate models (HJM), interest rate derivatives (caps, floors or swaptions).

Learning outcome

After completing the seminar the student is expected to be able to fulfil the learning outcome specified in the Master curriculum (voluntarily:) and to be able to cf. Ministry guidelines (link):

After attending the seminar, writing a seminar paper and presenting it to fellow students, participants are expected to have acquired the following knowledge, skills and competencies:

Knowledge
 - Acquire a broad understanding of the four topics of this seminar as well as the most       important results within each of these.
- Know some of the most important models in finance including their underlying assumptions, uses and shortcomings.
- Have extensive knowledge about a specific model including its relevance and place within the broader literature on the subject.

Skills
- Be able to understand, analyze and use a model within the literature on models used in finance.

- Critically assess the strengths and weaknesses of a particular model.
- Be able to structure a paper on a difficult topic.
- In writing and verbally present an advanced model clearly and concisely.

Competencies

- Asses the importance of the strengths and weaknesses of a model and how these affect the models use and applicability in practice.
- Be able to use your skills to provide useful and relevant feedback.
- Be able to use advice and critique to improve the quality of your work.

Asset Pricing:
Semmler, W. (2011). Asset Prices, Booms and Recessions, Chapter 9: Static Portfolio Theory: CAPM and Extensions. Springer
Cochrane, J. (2005). Asset Pricing: Revised Edition. Princeton University Press.
Ang A. and Bekaert, G. (2007). Stock Return Predictability: Is it There? Review of Financial Studies, Vol20, No 3. 651-707.

Portfolio Theory
Campbel J. Y. and Luis M. Viceira (1999). Consumption and Portfolio Decisions When Expected Returns are Time-Varying. The Quarterly Journal of Economics 114, 2. 433-495Bjork, T. (2019). Arbitrage Theory in Continuous Time, Chapter 19. Oxford University Press.

Derivatives Pricing
Jäckel, P. (2004). Stochastic Volatility Models: Past, Present and Future. Wharton School of the University of Pennsylvania.
Dupire, B. (1994). Pricing with a Smile. Risk, Vol 7, No 1, pp 18-20
Breeden, D. T, and Litzengerger, R. H. (1978). Prices of State-Contingent Claims in Option Prices. The Journal of Business, Vol 51, No 4, pp 621-653.
Korn, R. (2010). Recent Developments in Applied Probability and Statistics, Chapter 9: Binomial Trees in Option Pricing. pp 59-77.
Glasserman, P. (2003). Monte Carlo Methods in Financial Engineering, 3. edition. Springer.

Term Structure of Interest Rates and interest rate derivatives
Bjork, T. (2019). Arbitrage Theory in Continuous Time, Chapters 20-25. Oxford University Press.

Students are expected to have a basic understanding of portfolio theory and pricing of financial assets for example from the course Financial Decision Making (Corporate Finance and Incentives). In addition, it is recommended that students either have taken or will take concurrently with this seminar one or more of the following courses: Financial Econometrics A, Advanced Empirical Finance, Financial Theory and Models, Fixed Income Derivatives, or Pricing Financial Assets.

Autumn 2023

- Kick-off meeting: Week 36

- Deadline for submission of commitment paper / project description: No later than 1 October.
1 october

- Deadline for uploading a seminar assignment paper in the Digital Exam portal: No later than one week before the presentations.

- Presentations: 20 November - 11 December

- Exam date: 20 December at 10.00 AM - latest uploading of Seminar paper to the Digital Exam portal for assessment.

- Deadline for assessment: 24 January

All information regarding the seminar is communicated through Absalon including venue. It is very important that you by yourself log on to Absalon and read the information already when you are registered at the seminar.

Spring 2024

- Kick-off meeting: Week 6

- Deadline for submission of commitment paper / project description: No later than 1 March

- Deadline for uploading a seminar assignment paper in the Digital Exam portal: No later than one week before the presentations.

- Presentations: 1-23 May

- Exam date: 1 June at 10.00 AM - latest uploading of Seminar paper to the Digital Exam portal for assessment.

- Deadline for assessment: 29 June

All information regarding the seminar is communicated through Absalon including venue. It is very important that you by yourself log on to Absalon and read the information already when you are registered at the seminar.

Written
Oral
Individual
Collective
Continuous feedback during the course of the semester
Feedback by final exam (In addition to the grade)
Peer feedback (Students give each other feedback)

Feedback will be a substantial part of this seminar and will be given throughout the semester. Students are encouraged to ask questions whenever needed and provide regular updates of their progress with the paper.

ECTS
7,5 ECTS
Type of assessment
Written assignment
Aid

Use of AI tools is permitted. You must explain how you have used the tools. When text is solely or mainly generated by an AI tool, the tool used must be quoted as a source.

Marking scale
7-point grading scale
Censorship form
External censorship
Re-exam

Reexam information:

The reexam is a written seminar paper as stated in the  Curriculum.

 

Deadline and more information is available at  Seminars(UK) and  Seminars(DK).

More information about reexam etc is available at  Master(UK) and  Master(DK).

Criteria for exam assessment

Students are assessed on the extent to which they master the learning outcome for the seminar and can make use of the knowledge, skills and competencies listed in the learning outcomes in the  Curriculum of the Master programme.

 

To receive the top grade, the student must with no or only a few minor weaknesses be able to demonstrate an excellent performance displaying a high level of command of all aspects of the relevant material.

  • Category
  • Hours
  • Project work
  • 186
  • Seminar
  • 20
  • English
  • 206

Kursusinformation

Language
English
Course number
AØKK08436U
ECTS
7,5 ECTS
Programme level
Full Degree Master
Duration

1 semester

Placement
Autumn And Spring
Capacity
20
Studyboard
Department of Economics, Study Council
Contracting department
  • Department of Economics
Contracting faculty
  • Faculty of Social Sciences
Course Coordinator
  • Jacob Lundbeck Serup   (20-4d64667265314f7871676568666e3156687578734368667271316e7831676e)
Teacher

Jacob Lundbeck Serup / jacob.lundbeck.serup@gmail.com

Saved on the 27-07-2023

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