Note: cannot be taken with BEA2018 Corporate Finance and BEA3018 Advance Corporate Finance or BEA3008 Finance for Managers
Asset pricing is concerned with the valuation of claims to payments that are uncertain or occur at different points in time. The aim of this module is twofold: (1) to introduce students to the core concepts of modern asset pricing theory and (2) to equip and familiarize students with the basic methods for estimating and testing asset pricing models empirically. While the contents are mostly foundational and theoretical in nature, the conceptual knowledge and technical skills acquired in this module have numerous applications, both academic (in virtually all other areas of financial economics) and in the financial industry.
Remark: This module can in principle be studied without prior knowledge of BEE2027 Financial Markets and Decisions I. However, having studied BEE2027 may help students understand the contents of this module better. Students intending to take this module in their third year are therefore advised to take BEE2027 in their second year.
The module provides knowledge and technical skills that are highly relevant for quantitative analysis of security markets.
Research in Teaching
The module introduces students to recent academic studies of financial markets.
Full module specification
|Module title:||Asset Pricing|
(passed BEE1024 and BEE1023 and BEE2025) or (MTH2008 and MTH2011)
Cannot be taken with BEA2018 or BEA3018 or BEA3008
|Duration of module:||
Duration (weeks) - term 1: |
0Duration (weeks) - term 2:
11Duration (weeks) - term 3:
This module aims to give students a technically rigorous and self-contained introduction to asset pricing theory and empirics. After completing this module, students should have reached a sufficiently deep understanding of asset pricing to be able to study more advanced topics in financial economics at the postgraduate level.
ILO: Module-specific skills
- 1. Demonstrate the knowledge and understanding of asset pricing theory necessary to undertake more advanced (postgraduate) studies in financial economics
- 2. Apply regression-based methods for estimating and testing asset pricing models
- 3. Apply theories of consumer utility maximisation to asset pricing
- 4. Apply arbitrage arguments to the valuation of financial assets
ILO: Discipline-specific skills
- 5. Apply microeconomic decision theory to problems in financial economics
- 6. Use regression methods to test predictions of an economic model
ILO: Personal and key skills
- 7. Use logical reasoning to approach problems in a systematic way
- 8. Apply abstract mathematical tools from calculus, linear algebra, and probability theory to concrete problems with real-world relevance
Learning activities and teaching methods (given in hours of study time)
|Scheduled Learning and Teaching Activities||Guided independent study||Placement / study abroad|
Details of learning activities and teaching methods
|Category||Hours of study time||Description|
|Scheduled learning & teaching activities||22||Lectures|
|Scheduled learning & teaching activities||10||Tutorial|
|Guided independent study||118||Independent studies (including problem sets)|
|Form of assessment||Size of the assessment (eg length / duration)||ILOs assessed||Feedback method|
|Problem sets||n.a.||1-8||Discussion in tutorial sessions and office hours|
Summative assessment (% of credit)
|Coursework||Written exams||Practical exams|
Details of summative assessment
|Form of assessment||% of credit||Size of the assessment (eg length / duration)||ILOs assessed||Feedback method|
|Examination||90||2 hours||1-8||Exam grade and solution scheme|
|Online quiz* 1||5||Up to 1 hour||1-8||Grade and office hours|
|Online quiz* 2||5||Up to 1 hour||1-8||Grade and office hours|
Details of re-assessment (where required by referral or deferral)
|Original form of assessment||Form of re-assessment||ILOs re-assessed||Timescale for re-assessment|
|Examination||Same as original||1-10||August exam period|
|Online quiz 1||Same as original||1-8||July/August reassessment period|
|Online quiz 2||Same as original||1-8||July/August reassessment period|
*Deferral of an individual ELE quiz may result in an average being taken of quizzes that have been taken.
The module covers the following core topics:
- Stochastic discount factors
- Consumption-based asset pricing
- Arbitrage-free pricing
- Mean-variance frontier
- Capital Asset Pricing Model (CAPM)
- Linear factor models and their empirical estimation
As time permits, a selection of one or two of the following additional topics may be covered:
- Excess volatility and return predictability
- Pricing puzzles: equity premium puzzle, risk-free rate puzzle
- Pricing of derivatives
- Pricing of fixed-income securities
Indicative learning resources - Basic reading
The lecture covers selected chapters from:
Cochrane (2005) Asset Pricing, Revised Edition, Princeton University Press.
Textbook chapters are complemented by additional notes provided on ELE.
Module has an active ELE page?
Indicative learning resources - Other resources
Last revision date