The course will be made up of two parts. The first part focuses on asset pricing. We try to understand what underlying factors determine the prices and returns of different financial assets. This part covers the following topics:
• Mean-Variance analysis and its extensions
• Factor pricing models (CAPM and various multifactor asset pricing models)
• Empirical performance of different asset pricing models.
The second part focuses on the basic concepts of financial risk management and covers the following topics:
• Understanding different sources of risk (e.g., interest rate, market, and liquidity risk)
• Measuring risks: Value-at-Risk (VaR) and Expected shortfall (ES)
• Different methods for computing VaR and ES (e.g., analytical approximations, Monte Carlo simulations)
• How to reduce risks: implementing solutions of realistic risk management problems.