B8306 Professor Pagel1 B8306 Capital Markets and Investments Professor Michaela Pagel Spring 2015 Preliminary Syllabus – To Be Updated Please note that the first lecture of this class will be held on Thursday January 29 and not on the first day of classes (Tuesday January 27). 0. Contact Details Professor Michaela Pagel Office Location: Uris 418-A E-mail: [email protected] Office hours: Tuesdays 4 to 6pm or by appointment I. Course Description This course has three goals: 1 1. To introduce the principles of asset valuation from an applied perspective. Much of the class is concerned with the valuation of financial securities, including bonds, stocks, and options. The valuation techniques apply to portfolio management and risk management. 2. To develop the following concepts: arbitrage, the term structure of interest rates, bond duration, portfolio diversification, risk-return tradeoffs, the Capital Asset Pricing Model (CAPM), market (in)efficiency, performance evaluation, and options. 3. To provide sufficient background knowledge for students seeking an overview of capital markets and an introduction to advanced finance courses. The main topics can be summarized in seven groups: 1. 2 classes: Introductory Concepts 2. 4 classes: Valuation of Fixed Income Securities 3. 2 classes: Valuation of Securities with Risky Payoffs 4. 4 classes: Portfolio Choice 5. 3 classes: Evaluating Investment Performance 6. 3 classes: Behavioral Finance 7. 6 classes: Valuation of Options Throughout the course, we will address two basic questions: 1. Which methods do we use to value securities? 2. How do we build desirable portfolios? Kane. and regression. Course Materials I will distribute handouts of the lecture notes during class and will also place electronic copies of the lecture notes and other reading materials on Canvas.B8306 Professor Pagel 2 Connection with the Core Capital Markets builds on knowledge from Corporate Finance. or lectures emphasizing examples. and rooms TBA . II. Optimization methods and modeling tools from Business Analytics are also widely used. Course Administration 3B Finance and Economics Division: Marina Tourevski: mt2051@columbia. random variables and distributions. Capital Markets uses and builds upon the basic valuation tools developed in Corporate Finance. In analyzing various markets and assets. There are also some connections with Global Economic Environment. and Marcus (hereafter BKM) (Irwin McGraw Hill). Additional Readings: Relevant articles from industry. and Business Analytics courses by advancing students’ understanding of asset valuation and investment decisions. hypothesis testing. and asset valuation. Additional review sessions will help students with questions about cases. especially in our discussions of bond markets. Capital Markets uses many concepts from Statistics. The following textbook is useful as background material throughout this course: Investments by Bodie. parameter estimators. Special review sessions will be held before the midterm and final exams as follows: Midterm Reviews: Dates. III. Managerial Statistics. academia. I will reference relevant chapters in BKM. Solution manuals to the problems in the book are available on reserve in the business library (titled “Student solutions manual to accompany Investments"). the CAPM. including statistical modeling. and the popular press will be provided throughout the course. such as arbitrage.edu U U Teaching Assistants: Names and e-mail addresses: TBA Office Hours: TBA Please contact your teaching assistants if you have questions about the course. Review Sessions – Optional review sessions will be held by the teaching assistants on Fridays 9 to 10:30am in Uris 326. problem sets. understanding risk-return tradeoffs. time value of money. especially in portfolio and risk management. 9th or 10th edition. The first review session on February 6 will cover mathematical and statistical background for the class. times. check. listening thoughtfully. and consider all of those valid. Each quiz consists of no more than three review questions based on the week’s lectures and readings. Please do not use mobile electronic devices. Students are responsible for organizing these groups and should add all group members to one of the Assignment Groups on Canvas. times. late cases cannot be accepted. and rooms TBA Cases – There will be multiple case assignments. your lowest grade will be excluded from your problem set average when computing your course grade. Solutions will be posted soon after quizzes are due. check. Submitted problem sets will be graded on a check plus. students must take a short quiz on Canvas between Wednesday at 6pm and the following Monday at 9am. references. Cases and solutions will be available only in Canvas. Students are responsible for organizing these groups and should add all group members to one of the Assignment Groups on Canvas. Problem Sets – There will be multiple problem sets. smart phones. Because case solutions are discussed in class. or tablets. Class Participation – This evaluation is based on a student’s contribution to learning inside and outside the classroom. . such as cell phones. laptops. or check minus scale. Problem sets should be done in groups of 3 members (MBA Assignment Type A). Activities that enhance learning outside the classroom include taking the weekly Canvas quizzes. I understand that different people have different ways they best participate. or check minus scale. or coming to office hours. and attending the guest speaker’s lecture. Late problem sets cannot be accepted. keeping up with assigned readings. Any books.B8306 Professor Pagel 3 Final Reviews: Dates. Quizzes must be taken individually. Submitted cases will be graded on a check plus. Each case will be distributed at least one class in advance and due at the beginning of class on the due date. Activities that enhance learning in the classroom include attending lectures consistently. Although grades will be assigned to all assignments. Problem sets and solutions will be available only in Canvas. computing or calculating equipment can be used. The case grades are weighted equally in your course grades. Weekly Canvas Quizzes – Each week. Cases should be done in groups of 3 members (MBA Assignment Type A). Each assignment will be distributed one week in advance and will be due by 3pm on the due date. so late quizzes will not be accepted. answering questions addressed to the class. helping group members solve problem sets and cases. sharing well-formulated ideas. Quiz scores count towards the participation component of your grade. helping a classmate understand a concept. The exam will be open book -. including quizzes 4 . and computing devices. and rooms for the final exam will be announced soon.students can use any books. The exam will be administered by the Office of Student Affairs (OSA).B8306 Professor Pagel Midterm Exam – The dates. references. times. times. Components of the grade: 15% Cases 25% Problem Sets 20% Midterm exam 25% Final exam 15% Class participation. and rooms for the midterm exam will be announced soon. and computing devices. The exam will be open book -. Final Exam – The dates. The exam will be administered by OSA.students can use any books. references. Skill versus Luck 4. 3 PS 0 (A) due 10-Feb 3 5-Feb FIXED INCOME . Leverage. + Problem sets are due at the beginning of class on the due date.Payoffs and Arbitrage Relationships 21 16-Apr OPTIONS .Risk Management (Immunization) 16 7 19-Feb VALUING RISKY PAYOFFS .Empirical Anomalies 12 19 20 TBA 14-Apr Guest Speaker .Beyond the CAPM 10. 9 12 6-Mar PORTFOLIO CHOICE . C = individual/individual PS 2 (A) due 26-Feb 5.Applications of the CAPM 8.Default Risk and Swaps 16 8 24-Feb VALUING RISKY PAYOFFS . 2 Case 0 (A) due 3-Feb 3-Feb Introduction .Diversification 6 10 3-Mar PORTFOLIO CHOICE . 18 PS 3 (A) due 5-Mar PS 5 (A) due 14-Apr 26.The Efficient Frontier 7 11 5-Mar PORTFOLIO CHOICE .Pricing STRIPS and Coupon Bonds 14 4 10-Feb FIXED INCOME .Applications and Trading Strategies 25 30-Apr OPTIONS . Official MBA assignment types appear in parentheses A = group/group. 11 PS 4 (A) due 2-Apr 15 26-Mar PERFORMANCE EVALUATION .CAPM in Theory 8. B = group/individual. 9 13 14 TBA 24-Mar Midterm Exam – room/time TBA PERFORMANCE EVALUATION .Binomial Model 21 23 23-Apr OPTIONS . and No-arbitrage 2.CAPM Anomalies 9. 13 Case 2 (A) due 31-Mar 16 31-Mar PERFORMANCE EVALUATION .Interest Rate Risk (Duration) 16 Case 1 (A) due 17-Feb 6 17-Feb FIXED INCOME . 24 17 2-Apr BEHAVIORAL FINANCE .Biases & Limits to Arbitrage 12 18 7-Apr BEHAVIORAL FINANCE . 27 20 PS 6 (A) due 23-Apr Case 3 (A) due 28-Apr .Term Structure of Interest Rates 15 PS 1 (A) due 19-Feb 5 12-Feb FIXED INCOME .B8306 Professor Pagel 5 Course Content Outline Chapters in BKM Assignment (Type)* + Introduction .Course Outline and Background 1.TBA OPTIONS .Replicating an Option 21 22 21-Apr OPTIONS .Shorting.Black-Scholes Valuation 21 24 28-Apr OPTIONS .Equity Valuation 9 26-Feb PORTFOLIO CHOICE .Applications and Trading Strategies 26 TBA Class Date 1 29-Jan 2 Topic Final Exam – room/time TBA * Cases are due at the beginning of class on the due date.