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2020/2021  KAN-COECO1050U  Asset Pricing

English Title
Asset Pricing

Course information
Language English
Course ECTS 7.5 ECTS
Type Mandatory offered as elective
Level Full Degree Master
Duration One Semester
Start time of the course Autumn
Timetable Course schedule will be posted at calendar.cbs.dk
Max. participants 50
Study board
Study Board for MSc in Advanced Economics and Finance
Course coordinator
  • Kathrin Schlafmann - Department of Finance (FI)
Main academic disciplines
  • Finance
  • Economics
Teaching methods
  • Blended learning
Last updated on 11-12-2020

Relevant links
Learning objectives
  • The student should be able to account for selected asset pricing theories (or models).
  • The student should be able to discuss the strength and weakness in those theories (or models).
  • The student should be able to apply the appropriate model on a given issue.
  • The student should be able to reflect on the implications of alternative models on a given issue.
Course prerequisites
This is a mandatory course for the MSc in Advanced Economics and Finance. It is assumed that students have knowledge similar to the entry requirements for this programme. The course has 42 confrontation hours and there is a high level of interaction betw. lecturer and students, and in general a high work load.

The course assumes mathematical knowledge up to advanced college level or 1st year under-graduate level. This means basic analysis, univariate calculus, linear algebra, and probability.

To sign up send a 1-page motivational letter, a 1-page CV, and a grade transcript to ily.stu@cbs.dk before the registration deadline for elective courses. You may find the registration deadlines on my.cbs.dk ( https:/​/​studentcbs.sharepoint.com/​graduate/​pages/​registration-for-electives.aspx ).

Please also remember to sign up through the online registration.
Examination
The exam in the subject consists of two parts:
Asset Pricing - midterm:
Sub exam weight30%
Examination formHome assignment - written product
Individual or group examIndividual exam
Size of written productPlease see text below
There is no max., but you have 2 hours to work on your answer.
Assignment typeWritten assignment
DurationWritten product to be submitted on specified date and time.
Grading scale7-point grading scale
Examiner(s)One internal examiner
Exam periodWinter
Make-up exam/re-exam
Same examination form as the ordinary exam
Asset Pricing - final:
Sub exam weight70%
Examination formHome assignment - written product
Individual or group examIndividual exam
Size of written productPlease see text below
There is no max. but you have 3 hours to work on your exam paper.
Assignment typeWritten assignment
DurationWritten product to be submitted on specified date and time.
Grading scale7-point grading scale
Examiner(s)One internal examiner
Exam periodWinter
Make-up exam/re-exam
Same examination form as the ordinary exam
If the number of registered candidates for the make-up examination/re-take examination warrants that it may most appropriately be held as an oral examination, the programme office will inform the students that the make-up examination/re-take examination will be held as an oral examination instead.
Course content, structure and pedagogical approach

Asset pricing theory is the subject of uncertain cash flow valuation in terms of risk adjustments. Empirical work typically infers these risk adjustments, imbedded in low average prices, from high average returns. For example, the equity risk premium inferred from time-series evidence on returns suggests an adjustment that is an order of magnitude too large to be rationalised by neoclassical theory. Return anomalies are also pervasive in the cross-section of assets as evidenced by a vast literature that rejects the Capital Asset Pricing Model in favour of a multiple priced risk factors. 

 

This course provides a first principles account of discrete time asset pricing theory. The course begins by discussing how to represent investor preferences. The utility function representation of preferences is then applied to a host of optimal portfolio choice problems in a single period setting. The stochastic discount factor approach to asset pricing is introduced. We then turn to dynamic models of asset pricing where we discuss classic asset pricing anomalies in the context of consumption based models. We introduce some well studied solutions to these anomalies including the introduction of Epstein-Zin preferences, ambiguity aversion and habit formation. Finally, we discuss production based models and talk about intertemporal risk.

 

The syllabus is both exciting and extensive covering:

 

•    Choice Under Uncertainty, Utility Functions, and Risk Aversion
•    Static Portfolio Choice
•    The Capital Asset Pricing Model and Multi-Factor Models
•    The Stochastic Discount Factor, State Pricing and Risk Neutral Probabilities
•    Present Value Relations

•    Consumption Based Models
•    Production Based Models
•    Intertemporal Risk

 
Description of the teaching methods
• 9 lectures
• 4 problem classes
• 1 summary / revision class
Feedback during the teaching period
Exercises Classes
Quizzes
Forum
Student workload
Lectures 42 hours
Preparation 139 hours
Exam 25 hours
Further Information

PhD students taking the CBS PhD course in Asset Pricing are following a large part of this course and may be present during the lecture sessions.
Expected literature

Indicative: 

•    ‘Finance Decisions and Markets: A Course in Asset Pricing’, John Campbell
•    ‘Theory of Asset Pricing’, George Pennacchi
•    ‘Asset Pricing’, John Cochrane
•    Papers and Course Notes
Last updated on 11-12-2020