Postgraduate Course: Portfolio Theory (MATH11149)

Course Outline
School	School of Mathematics	College	College of Science and Engineering
Credit level (Normal year taken)	SCQF Level 11 (Postgraduate)	Availability	Not available to visiting students
SCQF Credits	15	ECTS Credits	7.5
Summary	Please note that this course is for MSc Financial Mathematics students only. This aim of this course is to provide postgraduate students with a broad knowledge of asset pricing and portfolio selection models.
Course description	Utility Theory. Stochastic Dominance. Measures of Investment Risk. Mean-Variance Portfolio Theory and alternatives Models of Asset Returns. Capital Asset Pricing Model. Efficient Market Hypothesis and behavioural finance. (prospect theory)

Entry Requirements (not applicable to Visiting Students)
Pre-requisites		Co-requisites
Prohibited Combinations		Other requirements	None

Course Delivery Information

Academic year 2015/16, Not available to visiting students (SS1)		Quota: None
Course Start	Semester 2
Timetable	Timetable
Learning and Teaching activities (Further Info)	Total Hours: 150 ( Lecture Hours 40, Summative Assessment Hours 2, Programme Level Learning and Teaching Hours 3, Directed Learning and Independent Learning Hours 105 )
Additional Information (Learning and Teaching)	Examination takes place at Heriot-Watt University
Assessment (Further Info)	Written Exam 100 %, Coursework 0 %, Practical Exam 0 %
Additional Information (Assessment)	Examination 100%. Exam is sat at and organised by Heriot-Watt University.
Feedback	Not entered
Exam Information
Exam Diet	Paper Name		Hours & Minutes
Main Exam Diet S2 (April/May)	Portfolio Theory MATH11149		2:00

Learning Outcomes
- Derive the properties of a utility function; - State the conditions for absolute, first order and second order stochastic dominance; - Calculate some important measures of risk: variance, semi-variance, shortfall probability and mean shortfall; - Calculate the mean and variance of return on a portfolio of assets; - Demonstrate an understanding of methods used to select portfolios of assets, including utility theory, stochastic dominance and mean-variance analysis; - Describe the purpose and calculation of the following: opportunity set, efficient frontier, indifference curve, separation theorem; - Develop a critical understanding on the theory of mean-variance model and understand its modifications using other risk measures; - Describe the properties of single-factor and multi-factor models. Show how to fit a single-factor model to market price data; - Discuss the assumptions underlying and applications of the Capital Asset Pricing Model ; - Derive the capital market line and the security market line; - Understand the concept of risk premium in Arbitrage Pricing Theory; - State the weak, semi-strong and strong forms of the efficient market hypotheses and discuss their economic implications; - Discuss the topics in prospect theory: framing, reference points, probability estimates.