Course syllabus - Portfolio Theory I

Objectives

The objective of the course is to give the student the opportunity to acquire basic knowledge of modern portfolio theory and to explore asset pricing models.

Learning outcomes

Upon completion of the course, the student is expected to be able to

1. explain why the characteristics of portfolios are significantly different from those of single assets
2. show the relationship between risk aversion and utility functions
3. calculate the optimal weight vector using Lagrange multipliers
4. identify the impact on the optimal portfolio if short-selling is not allowed
5. find the tangency portfolio when there is a risk-free asset
6. derive the CAPM and the APT
7. outline the differences between single-factor and multifactor models
8. describe situations where there are arbitrage opportunities when a specific model is assumed to hold
9. implement the models studied using a software/programming language suitable to work with financial time series
10. write a report and present a topic related to a subject within the course content

Course content

- Introduction to portfolio management: different categories of assets, passive versus active investment management, the portfolio management process
- Basic performance analysis concepts: rate of return and risk of a security, portfolio weights, portfolio expected return and risk, diversification
- Utility analysis: utility function, risk aversion, indifference curves
- Portfolio analysis: mean-variance analysis, opportunity set, efficient frontier and tangency portfolio
- Asset pricing models: CAPM, APT

Specific requirements

At least totally 60 credits in the technical, natural sciences, business administration or economics areas including Methods of Statistical Inference, 7.5 credits, of which 4.5 credits must be completed at the beginning of the course, or the equivalent.

Examination

OVN1, Exercise, 1 credit, exercises concerning learning outcomes 1-9, grades Fail (U), Pass (G) or Pass with distinction (VG).
SEM1, Seminar, 1.5 credits, active participation in seminars concerning learning outcomes 1-10, grades Fail (U), Pass (G) or Pass with distinction (VG).
TEN1, Written examination, 5 credits, individuals written examination concerning learning outcomes 1-8, grades Fail (U), Pass (G) or Pass with distinction (VG).
 
For Pass with distinction (VG) on the course as a whole, the student must have earned that grade for all parts: OVN1, SEM1 and TEN1.

A student who has a certificate from MDU regarding a disability has the opportunity to submit a request for supportive measures during written examinations or other forms of examination, in accordance with the Rules and Regulations for Examinations at First-cycle and Second-cycle Level at Mälardalen University (2020/1655). It is the examiner who takes decisions on any supportive measures, based on what kind of certificate is issued, and in that case which measures are to be applied.

Suspicions of attempting to deceive in examinations (cheating) are reported to the Vice-Chancellor, in accordance with the Higher Education Ordinance, and are examined by the University’s Disciplinary Board. If the Disciplinary Board considers the student to be guilty of a disciplinary offence, the Board will take a decision on disciplinary action, which will be a warning or suspension.

Grade

Three-grade scale