UNIVERSITY OF KENT

Module Specification

1. Title of module:

Economics of Finance 2: Asset Pricing (EC563)

2. The School which will be responsible for the management of the module:

Economics

3. The start date of the module:

September 2007

4. Start Cohort:

Stage 3 students in September 2007.

5. Number of students:

30-45

6. Withdrawn Modules:

None

7. Level of module:

Level H (FHEQ Level: 6)

8. The number of credits which the module represents:

15

9. Which term(s) the module is to be taught in (or other teaching pattern):

Spring

10. Pre-requisite and co-requisite modules:

Pre-requisites are EC500 Microeconomics (or EC528 Business Economics) and EC562 Economics of Finance 1: Financial Markets and Instruments

11. Programme of Study:

BSc in Financial Economics - compulsory

BSc in Financial Economics with Econometrics – compulsory

BSc and BA in single and joint honours Economics - optional

12. The intended subject specific learning outcomes and, as appropriate, their relationship to programme learning outcomes:

The module aims to:

·  Introduce students to the principles of risk neutral asset pricing

·  develop students analytical understanding of the economics of investment optimization

·  provide financial economic training for students who wish to work in financial markets

·  introduce students to principles of the numerical computation of asset values

On successful completion of the module, students will:

·  have understood the principles of risk neutral asset pricing

·  have understood the idea and methods of investment optimisation

·  have understood the principles underlying numerical computation of asset prices

·  be able to answer questions on the numerical valuation of assets

The economic analysis of asset pricing is a central issue in financial economics. This module contributes substantially to the subject skills acquired in the Financial Economics (with Econometrics) BScs and as an option contributes to the other single and joint honours BSc and BA programmes, specifically:

Financial Economics BSc – A1-8; C1-7

Financial Economics and Econometrics BSc - A1-8; C1-7

Single honours Economics BSc – A1-8; C1-7

Joint honours Economics BSc and BAs – A1-7; C1-5

13. The intended generic learning outcomes and, as appropriate, their relationship to programme learning outcomes:

The module will develop and reinforce student’s generic and transferable skills in a number of different areas. In particular, students successfully completing this module will have:

·  developed analytical and numerical skills through analysis of asset pricing of the working of financial markets

·  become more independent in the use of their problem solving abilities

·  improved their oral and written abilities in working out and presenting logical solutions to asset pricing problems set in exams and assignments

This module contributes to most of the intellectual and transferable skills of the Financial Economics (with Econometrics) BScs and as an option contributes to other single and joint economics BSc and BA programmes, specifically:

Financial Economics BSc – B1-5; D1-4,6-8

Financial Economics and Econometrics BSc - A1-5; D1-4, 6-8

Single honours Economics BSc – B1-5; D1-4,6-8

Joint honours Economics BSc and BAs – B1-5; D1-8

14. Curriculum:

The two major topic areas are optimization of investors and no-arbitrage theories of derivative pricing. Within these two general topics, issues examined are the consumption based Capital Asset Pricing Model, coefficient of risk aversion, precautionary saving, the equity premium puzzle, future and options markets, binomial tree models, complete markets, law of one price, no arbitrage opportunity, and risk neutral pricing in discrete time.

15. Indicative Reading List:

The recommended textbooks are:

Elton, Gruber, Brown and Goetzman , Modern Portfolio Theory and Investment Analysis, 6th

edition, John Wiley, 2006.
J. Hull,Introduction to Futures and Options Markets, 6th edition, Pearson, 2006.

Additional readings will be given in the module outline.

16. Learning and Teaching Methods, including the nature and number of contact hours and the total study hours which will be expected of students, and how these relate to achievement of the intended learning outcomes:

The module is taught by means of 12 lectures and six classes. The lectures introduce the module material and provide an overview of the knowledge, principles and techniques. At the end of each section of the module, students solve problem sets in advance of the classes. In the classes, students present their solutions and discuss problems that they may have with the analytical material and calculations. The nature of the module material is technical and the problems considered have objective technical correct answers. Help is provided in the problem sessions and the textbooks in this area have hundreds of example questions and worked solutions. These learning and teaching methods are designed to achieve all of the learning outcomes listed in sections 12 and 13. Total study hours are 150, comprising 12 one-hour lectures, 6 one-hour seminars, and the remainder being private study time.

17. Assessment Methods:

The final mark for this module is based on the final 2 hour exam (80%) and two tests (20%). The exam is composed of two parts, The first part of the exam (worth 40 out of 100 exam marks) contains eight questions out of which four must be answered with written responses. The second part (60 out of 100) asks four analytical questions two of which must be answered. The format of the exam questions are the same as those of the exercises considered in the problem classes. The short questions test the range of the students’ understanding and knowledge, but require brief and clear statements. The long questions ask students to derive key analytical results and calculate asset prices as well as to provide brief intuitions and related diagrams. The exam is designed to allow students to show their understanding of concepts and analytical skill, numerical and problem solving skills. The exam develops and tests all of the non-oral outcomes considered in sections 12 and 13.

The two one hour class tests have two technical questions and two short essay questions. Students have to answer one question of each type. The tests develop and assess all of the non-oral outcomes considered in sections 12 and 13.

18. Implications for learning resources, including staff, library, and IT space:

The Library will be required to purchase a few new books for this compulsory module on the Financial Economics BSc. No new journal subscriptions are required. The subject Librarian has been consulted about these purchases. The existing IT environment is good and more than sufficient for the needs of this module. A new member of staff (Dr. Katsuyuki Shibayama) has been recruited and a new member of staff (Professor Jagjit Chada) will be arriving in September who can both teach this module. Timetabling issues are not major and have been discussed with the Timetabling Office.

19. Disabilities:

No disadvantage specific to this module is anticipated for students with disability. However, all the best possible efforts will be made on a case-by-case basis, and a careful attention will be paid for individual cases.

Statement by the Director of Learning and Teaching: "I confirm I have been consulted on the above module proposal and have given advice on the correct procedures and required content of module proposals"

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Director of Learning and Teaching / ......
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Statement by the Head of School: "I confirm that the School has approved the introduction of the module and will be responsible for its resourcing"

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Head of School / ......
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