Topic outline

  • MTH6113 Mathematical Tools for Asset Management

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    In this module you learn essential approaches to our main topics

    • financial investment strategies: How to invest in the financial market? Especially in the view of uncertainties of the future market behaviour: How to judge a potential investment?
    • financial risk assessment: How to assess the risk of a financial investment? Especially in the view of uncertainties of the future market behaviour: How to measure the risk of an investment?

    The mathematical models, definitions, and methods that you will learn in this module are the basis of risk management and asset management in finance. Their deep understanding is essential to be able to manage financial investments and their inherent risk responsibly. The mature handling of financial risk is crucial for every single financial institution as well as for the stability of the financial system.


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  • Assessment

    • Assessment information for MTH6113: Tools for Asset Management:

      • Two graded assignments
        • both analytical and based on data-processing in MS Excel and data interpretation
        • each counts 15% towards the final grade
        • planned for weeks 6 and 10 of Spring Term
      • final exam in the exam period
        • counts 70% towards the final grade

    • Assessment information for MTH6113: Tools for Asset Management:

      • Two graded assignments
        • both analytical and based on data-processing in MS Excel and data interpretation
        • submission via QMplus 
        • each counts 15% towards the final grade
        • planned for weeks 6 and 10
      • final exam in the exam period
        • counts 70% towards the final grade
        • in person

    • Guidance for MTH6113 exam File
      106.8 KB

  • Exam papers

    There will be three specimen paper released - one in Week 9, one in Week 11 and one in Week 12. Please bring three A4 pages with notes to the class to use them when solving the specimen papers. 

  • Module Content

    1. Review of Statistics 
    2.  The Basis of Economic Theory: Utility Theory
      1.   Concepts and Optimisation
      2.  Rationality
    3.   ∙  Stochastic Dominance 
    4.   ∙  Portfolio Theory
      1. Understanding Risk and Measures of Risks
        1. Measures of investment risk
        2. Comparison of investment opportunities using different risk measures
        3. Assessment of risk
      2.    Mean-Variance Analysis 
    5.  Assets Pricing
      1. Capital Asset Pricing Model (CAPM)
      2. Factor Models and Arbitrage Pricing Theory (APT).  
    6. Efficient Market Hypothesis (EMH)
      1. Various forms of the EMH
      2. Comparison and consequences of each form of the hypothesis
      3. Testing EMH : Random Walk Model of Asset Pricing
    7.  Introduction to Stochastic Models of Asset Pricing 
      1. Moving from discrete Random Walks to continuous: Brownian Motions
      2. Continuous-time log-normal model
      3. Alternative models
    8.  Bounded Rationality and Behavioral Finance

  • Q-Review

    Live streaming and recordings of the lectures.

  • Teaching Schedule

    There will be four hours of teaching per week:

    • Tuesday, 12:00-2:00pm, G.O. Jones LT
    • Friday, 2:00-4:00pm, Maths LT.
    Note that unlike what you are used from previous semesters, there will be teaching in week 7. Due to Easter, there is no teaching in this module on Good Friday . Please check your official timetable for all teaching dates.

    Office hour: Thursday 12:00-1:00PM in the Student Hub

    Problem Sets
    In general there are Problem Sets every week. They contain theoretical  and Excel-based exercises. You are expected to attempt the questions by yourself to make full use of the in-class sessions. Solutions will be provided in class.  There is no submissions and no grading of these exercises, but they provide preparation for the in-term assessment and the exam.

    In-term assessment
    There will be a total of two graded in-term assignments, each accounting for 15% of your final grade. You will have a minimum of one week to work on each assignment. The Assignments will be released on Week 6 and Week 10. 

  • Q-Review

  • Learning outcomes

    ACADEMIC CONTENT

    This module covers:

    • Utility theory
    • Stochastic Dominance
    • Investment risk and return
    • Mean-variance portfolio theory
    • Pricing models
      • CAPM
      • Factor models of asset returns and Arbitrage Pricing Theory (APT)
    • Efficient markets hypothesis
    • Stochastic models of long-term behaviour of security prices
    • Behavioral Finance
    DISCIPLINARY SKILLS

    At the end of this module, students should be able to:

    • Recognize methods of measuring risk
    • Use portfolios for managing risk
    • Find maxima of utility functions depending on several variables
    • Effectively use the Capital Asset Pricing model
    • Understand the assumptions and limitations of the various forms of the efficient markets hypothesis
    • Use the language of mathematical finance with confidence

    ATTRIBUTES

    At the end of this module, students should have developed with respect to the following attributes:

    • Acquire and apply knowledge in a rigorous way
    • Connect information and ideas within their field of study
    • Explain and argue clearly and concisely
    • Apply analytical skills to investigate unfamiliar problems
    • Acquire substantial bodies of new knowledge
    • Identify information needs appropriate to different situations

  • Week 1: Introduction to Asset Management, Review of Statistics and Utility Theory

    For additional reading, please read:

    1. Financial Markets and Corporate Strategy (2nd edition), Hillier, Grinblatt and Titman (available as an ebook and in print in the library):

    • Chapter 4, Portfolio Tools (4.1-4.6)
    2. Intermediate Financial Theory, Danthine and Donaldson (available as an ebook and in print in the library):

    • Chapter 3.3 Choice theory under certainty


  • Week 2: Expected Utility Theory and Risk Aversion

    For additional reading please consult:

    Intermediate Financial Theory, Danthine and Donaldson (available as an ebook and in print in the library):

    • Chapter 3.5:  The expected Utility theorem
    • Chapter 4: Measuring Risk and Risk Aversion (4.1-4.5)


  • Week 3: Stochastic Dominance

    For additional reading please consult:

    Intermediate Financial Theory, Danthine and Donaldson (available as an ebook and in print in the library):

    • Chapter 4: Measuring Risk and Risk Aversion (4.6-4.8)

  • Week 4: Measures of Risk

    For additional reading please consult:

    Risk Management and Financial Institutions, 2023, Hull (available as an ebook and in print in the library)

    • Chapter 11: Value at Risk and Expected Shortfall 

  • Week 5: Mean-Variance portfolio theory

    Additional Reading: 

    Financial Markets and Corporate Strategy (2nd edition), Hillier, Grinblatt and Titman  (available as an ebook and in print in the library: 

    • Chapter 4 Portfolio Tools (4.6-4.10)
    • Chapter 5 Mean Variance Analysis and the Capital Asset Pricing Model (5.1-5.4)

  • Week 6: CAPM

    Additional Reading: 

    Financial Markets and Corporate Strategy (2nd edition), Hillier, Grinblatt and Titman  (available as an ebook and in print in the library: 

    • Chapter 5 Mean Variance Analysis and the Capital Asset Pricing Model (5.4-5.11)



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  • Assessment 1 - deadline March 15, at 5PM

  • Week 7: Friday - in class revision/office hours

  • Week 8: Factor Models and APT

    For additional reading, please read:

    1. Financial Markets and Corporate Strategy (2nd edition), Hillier, Grinblatt and Titman (available as an ebook and in print in the library):

    • Chapter 6, Factor Models and APT

  • Week 9: Efficient Market Hypothesis

  • Week 10: Stochastic Models of Asset Pricing

  • Assessment 2, deadline April 12th at 5PM

  • Week 11: Behavioral Finance

  • Week 12: Revision

    • Revision Notes File
      654.9 KB
    • Specimen Paper 3 File
      176.0 KB

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  • Where to get help

    To get help with the module you can

    • Post to the student forum (recommended).
      • Also check for questions from fellow students which you may be able to answer - this way you both profit.
      • I regularly check the forum and try to respond quickly.
    • Visit my office hours (Thursday 12:00-13:00am) in MB-226 or Student Hub
    • Send me an e-mail: M.Nica@qmul.ac.uk