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University of Exeter Business School

Asset Pricing

Module titleAsset Pricing
Module codeBEE3059
Academic year2023/4
Module staff

Dr Sebastian Merkel ()

Duration: Term123
Duration: Weeks




Number students taking module (anticipated)


Module description

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.

Additional Information:


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.


Module aims - intentions of the module

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.

Intended Learning Outcomes (ILOs)

ILO: Module-specific skills

On successfully completing the module you will be able to...

  • 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

On successfully completing the module you will be able to...

  • 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

On successfully completing the module you will be able to...

  • 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

Syllabus plan

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

Learning activities and teaching methods (given in hours of study time)

Scheduled Learning and Teaching ActivitiesGuided independent studyPlacement / study abroad

Details of learning activities and teaching methods

CategoryHours of study timeDescription
Scheduled learning & teaching activities22Lectures
Scheduled learning & teaching activities10Tutorial
Guided independent study118Independent studies (including problem sets)

Formative assessment

Form of assessmentSize of the assessment (eg length / duration)ILOs assessedFeedback method
Problem setsn.a.1-8Discussion in tutorial sessions and office hours

Summative assessment (% of credit)

CourseworkWritten examsPractical exams

Details of summative assessment

Form of assessment% of creditSize of the assessment (eg length / duration)ILOs assessedFeedback method
Examination902 hours1-8Exam grade and solution scheme
Online quiz* 15Up to 1 hour1-8Grade and office hours
Online quiz* 25Up to 1 hour1-8Grade and office hours

Details of re-assessment (where required by referral or deferral)

Original form of assessmentForm of re-assessmentILOs re-assessedTimescale for re-assessment
Examination Same as original1-10August exam period
Online quiz 1Same as original 1-8July/August reassessment period
Online quiz 2Same as original1-8July/August reassessment period

Re-assessment notes

*Deferral of an individual ELE quiz may result in an average being taken of quizzes that have been taken.

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.

Indicative learning resources - Other resources


Credit value15
Module ECTS


Module pre-requisites

(passed BEE1024 and BEE1023 and BEE2025) or (MTH2008 and MTH2011)

Module co-requisites

Cannot be taken with BEA2018 or BEA3018 or BEA3008

NQF level (module)


Available as distance learning?


Origin date


Last revision date