Investments

2 Credits.

This course offers the microeconomic theory and quantitative tools necessary for understanding how different kinds of financial instruments are priced and used for investment decisions. Rather than delving into the details of current practice, it takes a rigorous and critical view to the process of investing. The aim is to provide the students with a lasting conceptual framework in which to view and analyze investment decisions. Students learn how to value assets given forecasts of future cash flows and the risk characteristics of different asset classes. The focus is mainly on common stocks, but fixed income securities (bonds) and derivative securities (options) are also analyzed. Topics covered include: principles of economic analysis, laws of demand and supply, price and output determination in competitive markets, implications of pricing process for interest and capital, optimal portfolio selection based on mean–variance analysis, economic and statistical models of the relation between risk and return (including the CAPM and multifactor models), no-arbitrage derivative pricing, and market efficiency (including asset pricing anomalies and behavioral finance).