Financial Products and Markets

Recommended Prerequisites

Course Units: Mathematics for Economics and Management I, Statistics for Economics and Management I. Basic knowledge of mathematics and statistics for economics.

Teaching Methods

Theoretical sessions using expository methods, with audiovisual techniques, where basic concepts are presented and discussed and examples and news of real markets are presented. Practical sessions are used to resolve problems and exercises. Students are encouraged to solve the problems and exercises as independently as possible. These sessions are complemented with individual attention periods for clarification of doubts.

Learning Outcomes

It is intended that students get acquainted, at an introductory-medium level, with the terminology and basic concepts on financial products and markets. Students should be able to: (1) concisely interpret information publicly available from financial markets, (2) analyse and interpret financial statistics and the functioning of financial markets, (3) understand the relationship between profitability and risk of investments in financial markets. and (4) apply basic methodological tools for the evaluation of financial products. 

Work Placement(s)

No

Syllabus

1. STATISTICAL ANALYSIS OF FINANCIAL INVESTMENTS

1.1 Returns

1.2 Statistical measures

1.3 Portfolios

1.4 Continuous or discrete returns?

1.5 Sharpe ratio

2. FINANCIAL PRODUCTS AND MARKETS

2.1 The different types of financial assets

2.2 Taxonomy of financial markets

2.3 The formation of stock exchange prices

3. THE MEAN-VARIANCE MODEL

3.1 Diversification and risk reduction

3.2 Combinations of two risky assets

3.3 The efficiency frontier, the Funds Separation Theorem and the market portfolio

4. THE MARKET MODEL, CAPM AND PERFORMANCE MEASURES

4.1 The Market Model and the decomposition of risk

4.2 The Capital Asset Pricing Model (CAPM)

4.3 Portfolio Performance Measurement

5. THE YIELD TERM AND DURATIONS

5.1 Estimating the yield term

5.2 The explanatory theories of the yield term

5.3 Market expectations about future interest rates

5.4 Bond durations

6. THE EFFICIENT MARKET HYPOTHESIS

Head Lecturer(s)

Hélder Miguel Correia Virtuoso Sebastião

Assessment Methods

Assessment
Periodic or by final exam as given in the course information: 100.0%

Bibliography

Sebastião, H. "Lessons on Financial Products and Markets", [unpublished book]

Elton, E. J., Gruber, M. J., Brown, S. J. and Goetzmann, W. N. Modern Portfolio Theory and Investment Analysis. 9th ed., Wiley, 2014.

Bodie, Z., Kane, A. and Marcus, A. Investments. 12th ed., McGraw-Hill, 2021.