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Syllabus

EN IT

Learning Objectives

The course provides the concepts necessary to the evaluation of financial assets. Upon completion of the course the students will be able to compute the present value of a cash
flow available in the future, to determine the yield of an investment, to use the theory of compound interest rates to construct and a evaluate a reimbursement scheme like a
mortgage or a sinking fund. Students will learn about the term structure of interest rates, how to use it and construct it (bootstrap). They will know the main features of the most
important fixed income instruments such as bonds, swaps, futures and forward. The course will end with a presentation of the portfolio theory in mean-variance setting.
Upon completion of the course a student is expected to solve problems taken from real life situations (often simplified), and to know the theory motivating the practical solutions.

Prerequisites

The course has no formal prerequisites, although knowledge of the concepts of basis of calculus and probability theory, taught in the course of General Mathematics

Program

The course is an introduction to the theory of valuation of financial assets. It provides the
basic tools for evaluating the risk of a portfolio whose value is affected by variation of
interest rates. It also deals with random cash flows with a mean-variance approach. It
covers the following topics:
Deterministic Cash Flow Streams
1. The Basic Theory of Interest
2. Fixed Income Securities
3. The term structure of interest rates
4. Forward and futures prices
4. Duration and Immunization
5. Mean-Variance Portfolio Theory

Books

David G. Luenberger, ”Investment Science” , Oxford University Press (2013)

Bibliography

David G. Luenberger, ”Investment Science” , Oxford University Press (2013)

Teaching methods

Lectures consist in the explanation by the teacher of the main topics. After the Theory, part of the lecture is devoted to practical examples.

Exam Rules

Comprehension of the course material is assessed through problem solving that requires the creative application of the concepts developed during lectures.
Problems will be assigned weekly to allow for ongoing assessment that will contribute to the final grade.
Access to the final exam will be permitted even for those who do not participate in the ongoing assessment.
The final exam will be written and will include both practical and theoretical problems.
Practical problems will assess the ability to apply knowledge.
Theoretical questions will assess presentation skills.