This is an introductory course designed for second-year undergraduate
students with finance major. Its purpose is to get students familiar with
both the theory and practices in financial markets and to prepare them
for advanced and specialized courses such as Futures and Options Markets,
Bond Markets, and Management of Financial Institutions. The contents of
this course will follow closely the required textbook, Zvi Bodie, Alex Kane,
Alan J. Marcus, and Ravi Jain, 2014, Investments, the Asia global edition,
McGraw-Hill.1 Although some chapters will not be covered in class, they
will be assigned as background readings, and will be tested in the mid-term
and final exams. Other than the textbook, lecture notes will be posted at
the course website regularly.
The course proceeds in four steps. We shall first look at the major financial
markets and instruments in the world, discuss their trading mechanisms,
and emphasize their role in helping people attain risk-sharing efficiency and
enhance individual welfare. Second, we shall review some basic ideas in the
decision theory under uncertainty and the two classic static asset pricing theories,
the Capital Asset Pricing Model and the Arbitrage Pricing Theory. In
the third part of the couse, we shall first introduce the notion of market efficiency
(and present some empirical evidence) and then examine in detail the
markets for fixed-income securities, for equity, and for derivative assets such
like futures and options. Here pricing and hedging are both the emphases.
In the last part of the course, if time allows, we shall discuss active portfolio
management strategies as well as performance evaluation of portfolio managers. We shall briefly mention hedge funds.
There will be homework assignments due regularly, which together with
an in-class midterm and final examinations determine a student’s grade. The
following is a tentative schedule.
Week no. Contents
1 Overview (ch.1-5, Lecture 1) and Math Review (Lectures 0)
2 Expected Utility Theory (ch.