Asset Pricing

Course

URL study guide

https://studiegids.vu.nl/en/courses/2024-2025/E_IBK3_AP

Course Objective

In this course you will learn about asset pricing, which explores the factors that determine the prices and returns of financial assets. In the first part of the course, the central concept is the relationship between risk and return of financial assets. The goal is to gain insights into the risks associated with financial portfolios and investments and to be able to calculate/estimate such risks. Furthermore, another goal is to learn how to benefit from diversification possibilities. Finally, you will also learn how to compute expected returns on investments and the cost of capital on the basis of the Capital Asset Pricing Model and multifactor models. (Academic and Research Skills, Bridging Theory and Practice
- Application) In the second part of the course, the goal is to gain deeper insight into risk management by analyzing Value-at-Risk, duration-based strategies and risk management based off derivatives such as futures and forwards. (Academic and Research Skills, Bridging Theory and Practice
- Application). By accomplishing these learning goals, you will gain new academic and research skills and develop your professional knowledge in the area of financial risk and risk management. You will apply these theoretical concepts into practice by focusing on the creation of portfolios and investments using real-world data.(Bridging theory and practice
- Application)

Course Content

Central topics that will be discussed are: - Trade-off between risk and return; - Estimation of average return and volatility; - Concepts of covariance and correlation and their estimation; - Risk and return of portfolios; - Diversification; - Concept of efficient portfolios; - CAPM and multifactor models; - Cost of capital
- Value-at-Risk - Characteristics and pricing of futures and forwards; - Use of forwards and futures in risk hedging; - Principle of no arbitrage; - Interest rate risk
- Duration

Teaching Methods

Knowledge clips, lectures, tutorials and Q&A-sessions.

Method of Assessment

Written exam, data-based assignment, and weekly Canvas quizzes.

Literature

J. Berk and P. DeMarzo, Corporate Finance, Pearson,6th Global Edition. Lecture and tutorial materials (slides, papers)

Entry Requirements

The course builds on concepts discussed in previous Finance courses (Finance, Financieel Management) and uses methods that students have learned in Quantitative Research Methods I and II.

Recommended background knowledge

The course builds on concepts discussed in previous Finance courses (Finance, Financieel Management) and uses methods that students have learned in Quantitative Research Methods I and II.

Explanation Canvas

There will be weekly quizzes on Canvas that are relevant to the final grade.
Academic year1/09/2431/08/25
Course level6.00 EC

Language of Tuition

  • English

Study type

  • Bachelor