Number of credits
|Master in economics : general (120 ECTS)||5 crédits|
Language(s) of instruction
Units courses prerequisite and corequisite
Prerequisite or corequisite units are presented within each program
Learning unit contents
This course provides insights into the economic modeling of financial markets, institutions and instruments. The course is divided in four parts: 1. Preferences for Risk and Return. This part studies the main aspects of financial risk and returns at rational expectations equilibrium and the sources of deviation from this equilibrium. A particular focus is brought on the influence of the preference structure of economic agents on the notions of "utility function", "expected utility", "risk" and "risk premium". The notions of "risk aversion" and "risk perception" are very important. Applications are provided in the fields of asset pricing and behavioral finance. 2. Financial economics and portfolio management. Building on the previous part, the course reviews portfolio management and performance measurement frameworks and tools. In practice, the chosen framework and tools have to be consistent with the investor's preferences. A) Sharpe's portfolio optimization model based on the maximization of expected utility is studied. B) Besides, another portfolio optimization approach, the Black-Litterman Model which builds on Markowitz's (mean-variance) Modern Portfolio Theory and integrates the investor's market anticipations (about asset expected returns), is also analyzed. 3. Arbitrage Pricing Theory and mutual fund performance. A) APT has contributed to the development of other asset pricing models, the Factor models which are also addressed within this course (for example, the Fama-French 3-Factor Model). B) Moreover, performance measures for investment funds are also analyzed with a focus on the measurement of the manager's market-timing skills with the Treynor-Mazuy Model and some improvements to the model. 4. State prices and the pricing of contingent claims. We review the notions of state pricing, risk-neutral probabilities, stochastic discount factor, and we address applications in the fields of market completeness, interest rate modeling and the pricing of interest rate instruments and derivatives. The applications feature the development and parameterization of term structure binomial lattice models and the Black-Derman-Toy Model. Finally, the course prioritizes contacts with market professionals as selected guests intervene during some sessions on topics such as the valuation of options (notion of smiles,...) and the banking and financial regulation (Basel 3, Comprehensive Assessment,...).
Learning outcomes of the learning unit
The course pursues the following objectives:
1. To endow students with the basic insight regarding the formation of financial prices at equilibrium and the deviations thereof.
2. To provide students with the body of knowledge necessary to understand the interactions between financial markets participants and regulators.
3. To train students to the application of well-known theories and to the resolution of pracical problems (portfolio optimization, risk and performance management, modelization of interest-rates and asset valuation to fixed-income portfolio management, and to the analysis of academic papers.
4. To confront students with real issues through the experience of high-level market practitioners. Intended Key Learning Outcomes: In concordance with the Key Learning Outcomes of the Master in Management Sciences, this course aims to enable the student to: - Strategy: Establish a strategy in order to optimize the value chain of a company, an organization or a project * based on a recognized expertise in economics. * taking into account its political, social and societal context. * adopting the position of a specialist in the field of economics. * demonstrating a critical mind and scientific precision. - Control: Plan and implement the performance and quality control in a company, an organization or a project * using the appropriate analytical tools. * in order to propose realistic and coherent ways of improvement. - Communication: Communicate efficiently, internally and externally, about a company, organization or project * in English. - Adaptability: Adapt his/her managerial practice to the needs of a fast-evolving world. * showing curiosity and a scientific precision of academic level.
Prerequisite knowledge and skills
An introductory course in Financial Markets
Planned learning activities and teaching methods
For each topic (4x):
- 1 x 2h theory (lecture);
- 2 x 1h student presentations on theoretical and practical aspects (by group);
- A synthetical assignment per group, using market data, on one of the four themes
Mode of delivery (face-to-face ; distance-learning)
8 hours of ex-cathedra lectures
8 to 10 hours of students' presentations (by groups) and group discussions
- 2 presentations (+-1h-1h30 each) per group
1 to 2 x 3 hours of conferences with senior finance executives
Homework and group work (Course study, preparation of presentations and practical assignments)
Recommended or required readings
PowerPoint presentations (available on the university's website lol@)
While building mainly on:
- Mishkin, F. "The Economics of Money, Banking and Financial Markets" (Pearson Educ., Global edition, 10th Edition, 2013)
- Fabozzi, F., Neave, E. H. and Zhou, G. "Financial Economics" (Wiley, 2012)
Academic papers (available on the university's website lol@)
Assessment methods and criteria
A) Oral exam (50% of the final mark)
B) Group work (50% of the final mark):
- Analysis and presentation of a theoretical academic paper / book chapter about a theoretical topic
- Analysis and presentation of an academic paper about a practical topic
- Practical assignment linked to one presented topic
- Active participation in class (individual)
Relative weighting of individual assessment: 50% (+ participation)