Consumption-based asset pricing. Stochastic discount factors. Capital Asset Pricing Model (CAPM). Arbitrage pricing theory (APT). Forecasting return and risk. Practical portfolio optimisation: costs and constraints, Robust techniques for estimation and portfolio management.
- Lecturer: Nazem Khan
Course term: Hilary
Course lecture information: 8 lectures
Course overview:
This course introduces key concepts in asset pricing, focusing on how risk and return are related in financial markets. Topics include mean-variance portfolio theory, the Capital Asset Pricing Model (CAPM), and practical challenges in portfolio construction. Students will also explore how to estimate expected returns and variances using historical data, and how estimation error affects portfolio decisions.
The course concludes with an introduction to multifactor models, which extend CAPM by incorporating multiple sources of systematic risk. Models such as the Fama-French three-factor model are used to better explain the cross-section of expected returns. Emphasis is placed on the connection between theory and real-world implementation.
The course concludes with an introduction to multifactor models, which extend CAPM by incorporating multiple sources of systematic risk. Models such as the Fama-French three-factor model are used to better explain the cross-section of expected returns. Emphasis is placed on the connection between theory and real-world implementation.
Course synopsis:
Markowitz portfolio theory
Efficient frontier
Estimation errors
Capital Asset Pricing Model (CAPM)
Advantages and disadvantages of CAPM
Fama–French three-factor model
Other extensions of CAPM
Efficient frontier
Estimation errors
Capital Asset Pricing Model (CAPM)
Advantages and disadvantages of CAPM
Fama–French three-factor model
Other extensions of CAPM