Master of European and International Private Banking (M2 EIPB) Titre du Cours : Course Title: Heures : 20h Lecture hours: ECTS Credits: 3 Risk and Stock Market (GMEIPB53) Ø PRE-REQUIS / PRE-REQUISITE No pre-requisite Ø OBJECTIFS PÉDAGOGIQUES DU COURS / LEARNING OBJECTIVES Upon completion of this course, students should be able to: a. Understand how to allocate capital among several assert classes, given an investor s risk preference, using mean variance efficient methodology. b. Demonstrate a working knowledge of the theoretical models used for valuation of stocks, bonds, futures and options. a. Apply those valuation methodologies to identify over and under valued securities and to predict changes in value given changes in the environment. b. Recognize the basic elements needed to hedge a portfolio and manage portfolio risk. Ø CONTENU DU COURS / DESCRIPTION OF THE COURSE The course introduces to the topics of risk management, stock market and the application of financial theories to investments. The course begins with an overview of the financial markets and financial instruments, followed by detailed discussions of the key concepts that underlie modern investment decisions. It emphasizes a rigorous understanding of the theory and practice of financial markets, illustrating the concepts through examples and cases drawn from the public, private, and non-profit sectors. Topics covered include: the tradeoff between risk and return, market efficiency, pricing of stocks and bonds, the capital asset pricing model, term structure of interest rates, the principle of arbitrage, the behavioral finance principles, diversification, risk management, and the regulation of financial markets. The focus of the course will be on both the theoretical framework for securities valuation as well as practical approaches used by market participants managing portfolios.
Ø LISTE DES SUJETS OU RESUME DES SÉANCE/ TOPICS OF EACH SESSION OR SUMMARY OF THE COURSE Date Topic/Session Course Introduction and Course Overview; The Investment Environment, the Financial Assets, The Financial Markets and the Economy, Asset Classes (Money Markets, Bond Markets, Equity Securities, Stock and Bond Market Indexes, Derivatives Markets), How Securities are Traded, Mutual Funds and Other Investment Companies Readings or assignments (specify deadlines) Readings: Chapters 1, 2, 3, 4 of the Textbook by Bodie, Z., Kane, A., Marcus, A. (2013). Investments 10th Edition The Basics of Risk and Risk Premiums; Risk Measurement and Hurdle Rates in Practice; Historical Returns on Risk Portfolios, Measuring Return on Investments, Capital Allocation to Risky Assets, Optimal Risky Portfolios, Value-at-Risk, Stress Testing and Scenario Analysis, Interest Rate Risk, Volatility, Market Corrections, Correlations, Systemic Risk, Cumulative Probability; Gaussian Copula; Black Swans; Financial Crises; VaR; Monte-Carlo methods Readings: Chapters 5, 6, 7 of the Textbook by Bodie, Z., Kane, A., Marcus, A. (2013). Investments 10th Edition The Capital Asset pricing Model (CAPM), Arbitrage Pricing Theory and Multifactor Model of Risk and Return, Behavioral Finance and Technical Analysis, Bonds Prices and Yields, Term Structure of Interest Rates, Managing Bond Portfolios, Macroeconomic Policy and Analysis, Equity Valuation Models, Portfolio Diversification, Portfolio Performance Evaluation, Investment Policy and Risk Tolerance. Earnings Multiples, Book Value Multiples,. Risk Adjusted Performance Measures Readings: Chapters 9, 10, 12, 14, 16, 17, 18 of the Textbook by Bodie, Z., Kane, A., Marcus, A. (2013). Investments 10th Edition Assignments submission Deadline for the submission of the Course Assignments
2 HOURS Individual Final Exam Close Book, Open Formula Sheets. A financial calculator will be needed for the final exam. Ø METHODES D EVALUATION (CONTROLE CONTINU) / EVALUATION AND GRADING - Attendance and participation assessment - Final exam - Continuous assessment - Individual and group assignments and case studies - Oral presentation - Team projects GRADING / EVALUATION - Attendance and Participation 10% - Individual assignments and cases 20% - Group assignments and cases 20% - Final Exam 50% Students are expected to attend all sessions, unless they have a valid excuse. Lecture notes have to be asked to other members of the class, as my power point presentations are only the basic support of the course. Required reading material is mandatory for the exam. Assessment for this course will take the form of: - Group Case Study Analyses and/or Assignments (20%): On the date reported in the course schedule a group of students (4 to 6 students each) will have to submit their group assignments (exercises and case studies analyses) to the lecturer. In case of the use of case studies, students will have to submit to the lecturer a written short essay (WORD document) for each case study assignment (circa 1000 words). - Individual Case Study Analyses and/or Assignments (20%): On the date reported in course schedule in case of the use of case studies, students will have to submit to the lecturer a written short essay (WORD document) for each case study assignment (circa 1000 words). - Final exam (50%): Assessment for this course will also take the form of a written test that will include both open-ended questions and multiple choice questions, or exercises or short cases. - Participation in class and attendance (10%) Here are some general guidelines about the structure of the assignments: Each assignment must report on the cover page the following data: name of university and master program, year of the program, course title, title of the essay/assignment, date of submission, authors of the assignment/essay, students ID number, name of the lecturer. Other information required for the submission of the essays include: table of contents; introduction, conclusion, and bibliography/references. Assignments writing should be : Times New Roman, singlespaced, font size: 12. The following official IAE-SFSU cut-offs for letter grades are used: USA FRANCE Letter Grade Out of a 100 GPA Out of 20 Extra points 19-20 A+ 96 100 4.0 16 18 A 90 3.7 4.0 14-16 B 80 2.7 13-14 C 70 1.7 10-12
D 60 0.7 10 and below General criteria for marking are as follows: - 10 and below: Basic summary. - 10 14: Well-presented summary, clearly structured, concisely written and technically precise, no or little independent analysis. - 14 16: As 10-14, plus analytical interpretation of the arguments discussed, proven ability of independent critical assessment. - 16 +: As 14-16, plus use of wide range of source material, particularly well-presented independent assessment. Ø REFERENCES BIBLIOGRAPHIQUES / BIBLIOGRAPHY Required Textbook: Bodie, Z., Kane, A., Marcus, A. (2014). Investments. Global Edition. McGraw-Hil/Irwin. ISBN-13: 978-0077161149 Or alternatively, Bodie, Z., Kane, A., Marcus, A. (2013). Essentials of Investments, 9th edition, McGraw-Hill Irwin. The textbook can be purchased online. ISBN 978-0078034695 Bibliography: Artzner, P. et al. (1999). Coherent Measures of Risk, Mathematical Finance, Vol. 9, No. 3, Blackwell Publishers Benninga, S. (2014). Financial Modeling, 4th edition, The MIT Press Black, F. (1993). Beta and Return, Journal of Portfolio Management 20, 8-18. Bodie, Z. (1995). On the Risk of Stocks in the Long Run, Financial Analysts Journal 52, 18-22. Bodie, Z., et al (1997). Personal Investing: Advice, Theory, and Evidence, Journal of Portfolio Management 53, 13-23. Brealey, R., Myers, S. (2014). Principles of Corporate Finance, 11th edition, McGraw-Hill Financial Cochrane, J.,H. (1999). Portfolio Advice for a Multifactor World Economic Perspectives Federal Reserve Bank of Chicago 23 (3) 59-78. Cochrane, J. (2011). Discount Rates, Journal of Finance 66, 1047-1108 (August 2011). p. 1079-1086 Damodaran, A., (2012). Investment Valuation: Tools and Techniques for Determining the Value of Any Asset 3rd Edition, Wiley; 3 edition Damodaran, A., (2012). Strategic Risk Taking: A Framework for Risk Management, FT Press; 1 edition Duffie, D. (2009). How Should We Regulate Derivatives Markets? Pew Financial Reform Project Briefing Elton et al. (2010). Modern Portfolio Theory and Investment Analysis, Wiley Fabozzi, F., J. (2011). The Theory and Practice of Investment Management, Wiley
Fama, E., F. and K., R. French (2011). Size, Value and Momentum in International Stock Returns, Journal of Financial Economics 105 (2012) 457 472 Gorton, G., B., (2010). Questions and Answers about the Financial Crisis Manuscript, Prepared for the U.S. Financial Crisis Inquiry Commission Hull, J., C. (2015). Risk Management and Financial Institutions 4th Edition, Wiley Hull, J., C. (2012). Options, Futures and Other Derivatives, Prentice Hall Lhabitant, F. S. (2007). Handbook of Hedge Funds, The Wiley Finance Series Luenberger, D., (2013). Investment Science, 2nd edition, Oxford University Press, (uses calculus). Lustig, H.,, et al. (2011)."Common Risk Factors in Currency Markets," Review of Financial Studies 24: 3731-3777 McNeil, A., J., et al. (2005). Quantitative Risk Management: Concepts, Techniques and Tools, Princeton University Press Merton, R. (1990). The Financial System and Economic Performance, Journal of Financial Services Research 4, 263-300 Meucci, A. (2005). Risk and Asset Allocation, Springer Finance Mishkin, F. (1998). The Economics of Money, Banking and Financial Institutions, 5 th Edition. Reading, MA: Addison Wesley Longman (Chapters 1-3) Modigliani, F., Pogue, G. A. (1974). An Introduction to Risk and Return: Concepts and Evidence Financial Analysts Journal, Vol. 30, No. 2, pp. 68-80, Peterson, S., P. (2012). Investment Theory and Risk Management, Wiley; 1 edition. Pezzuto, I. (2013). Predictable and Avoidable: Repairing Economic Dislocation and Preventing the Recurrence of Crisis, Routledge. Ross, S., et al. (2013). Corporate Finance, 10th edition, McGraw-Hill Financial Roubini, N. (2006). Why Central Banks Should Burst Bubbles, Spring 2006 issue of International Finance Samuelson, P. (1990). Asset Allocation Could be Dangerous to Your Health, Journal of Portfolio Management Spring, 5-8. Sharpe, W. (1990). Asset Allocation, in J. Magin and D. Tuttle, eds., Managing Investment Portfolios: A Dynamic Process. Boston: Warren, Gorham &Lamont. Shiller, R. J. (2003). From Efficient Market Theory to Behavioral Finance, Journal of Economic Perspectives vol.17, pp. 83-104. Shiller, R. J. (2005). Irrational Exuberance, Crown Business; 2 edition. The Financial Crisis Inquiry Commission (FCIC) (2011). The Financial Crisis Inquiry Report. The US Government Printing Office. Treynor, J., F. Black (1973). How to Use Security Analysis to Improve Portfolio Selection, Journal of Business 46, 66-86