The course is based on the textbook by Bodie, Kane and Marcus (BKM):
The course uses chapters 7, 9 – 11, 14 – 16, 20 – 23. Every student is expected to carefully read the respective chapters and work on the end of chapter questions.
Additional materials accompanying the textbook can be downloaded at: www.mhhe/bkm
At the core of the course are Financial Instruments and Financial Markets. It consists of three parts: equity instruments, fixed income instruments, and derivatives like futures and options. In the first part of equity investments, building on OFIN, the theory of optimal portfolio selection is discussed. This serves as a basis for determining the cost of equity based on the CAPM and multifactor models. Later on, the basic approaches for business valuation are presented.
The part on fixed income starts with an analysis of the yield curve and introduces the fundamental valuation of bonds (fixed income securities). The concepts of duration and convexity are presented as the central instruments to measure interest rate sensitivity of bonds. Later on, their use in the context of interest rate risk management of bond investments will be discussed.
In the third part on derivatives, the basic derivative instruments like forwards, futures, and options as well as the functioning of the markets for these products will be presented. Based on an analysis of the product characteristics, the theoretical models for determining of the forward / futures price as well as option valuation under no-arbitrage conditions will be discussed. Strategies for portfolio management including derivatives are presented.
Prof. Dr. Mark Wahrenburg
Nguyen Thanh Liem
Type of Course:
The course format consists of lecture sessions and exercise sessions. In exercise sessions, the knowledge from the lectures is to be applied to specific tasks and problems. The grade is determined from the final exam which is a written examination of 90 minutes duration.