SEMESTER II 2007

COURSE OUTLINE

Teaching Philisophy

'Whatever be the detail with which you cram your students, the chance of them meeting in after-life exactly that detail is almost infinitesimal; and if they do meet it they will probably have forgotten what you taught them about it.  The really useful training yields a comprehension of a few general principles with a thorough grounding in the way they apply to a variety of concrete details.  In subsequent practice, the students will have forgotten your particular detail, but they will remember by an unconscious common sense how to apply principles to immediate circumstances."

Alfred N. Whitehead: The Aims of Education & other Essays.

Introduction

The objective of this course is to provide the student with the understanding of investment analysis from an institutional investor perspective. The course focuses on investment analysis in the capital market.  The aim is to introduce the student to the theoretical and practical concepts of Asset/Liability Management.  The course will cover topics on the risk return components, and the valuation of financial securities.  The financial instruments to be reviewed are stocks, bonds, call options, put options, forward and futures contracts, swaps and aspects of financial engineering.

Course Objectives

On completion of this course the student should be able to:

ü       Demonstrate understanding of the various types of interest rate risk models used by depository institutions

ü       Describe basic characteristics of bonds, stocks and other securities

ü       Demonstrate understanding of duration, term structure of interest rates, convexity

ü       Demonstrate understanding of recent innovations in instruments used in financial engineering: basic strategies involving options, 

      futures & swaps; value options using payoff diagrams, Black-Scholes Option Pricing Model, Risk-Neutral Probability Measure…

Course Material, References

Though handouts will be provided, you may find the following reference texts useful; they are available in the main library.

 Investments (I)

Bodie, Kane & Marcus    Prescribed Text           Available in BOOKSHOP & main library.

 Options, Futures & Other Derivatives

John Hull                                                         Available in BOOKSHOP & main library.

Handbook of Fixed Income Securities (FIS)

Fabozzi   Chaps. 5 & 6

 Financial Institutions Management (FIM)            Available in main library.

           Anthony Saunders     Chaps. 8 & 9

Course Structure

Past Papers

•  April/May 2005

• Major Steps in the Construction of an Investment Portfolio

Assignments

• Assignment 1.5

Lecturer: Yvette Johns, Room 9