FIN10 Introductory Applied Finance

• Topics

  Introductory Applied Finance is a semi-intensive course that equips students with the knowledge and tools to implement financial models using Excel. The course covers a range of topics in finance, including both standard material and more advanced topics, with the emphasis on practical application. Lectures on each topic are followed by in-depth practical classes, in which students work through real world problems using Excel. The course also introduces students to the use of VBA in financial modelling.

  1. Introduction to financial modelling in Excel

  2. Event studies

  3. Portfolio optimisation

  4. Performance evaluation and style analysis

  5. Value at Risk

  6. Option pricing

• Learning outcome

  On successful completion of this module, students can:

  Knowledge

  • Understand the close relationship between the finance theory and its application to real world data.
  • Understand the principles of financial modelling and the characteristics of financial data.
  • Appreciate the nuances of the various financial models when implemented in practice and consider. sustainability requirements that they imply.
  • Have an overview of Visual Basic for Applications with which one can create macros to automate repetitive data-processing functions.

  Skills

  • Download financial data from the internet for a range of securities, including stocks, bonds, derivatives and currencies.
  • Undertake a range of financial and statistical calculations in Excel.
  • Use matrix functions in Excel and estimate the variance-covariance matrix of returns.
  • Use Excel's solver function and derive the optimal passively managed portfolio of securities, with and without investment constraints.
  • Use Excel's regression analysis tool, linear estimation function and regression functions, and undertake a style analysis of a portfolio.
  • Conduct an event study in Excel.
  • Understand the principles of VBA and write a simple VBA function to find the fair price of an option.
  • Understand the relationship between risk and return.
  • Understand the principles of passive portfolio management.
  • Understand the principles of option pricing.
  • Use the event study methodology to test hypotheses about market efficiency.
  • Understand the principles of duration, convexity and immunisation.

  General Competences

  • Develop their writing skills.
  • Work in groups.
  • Download and manipulate complex data.
  • Solve applied problems using Excel and VBA.
  • Plan and undertake independent research projects.

• Teaching

  Lectures and group-based computer classes

  The course is taught semi-intensively.

• Recommended prerequisites

  There is the strong expectation for students to have completed one or more courses in finance theory at the undergraduate level. It is important for student performance that they should have had exposure to CAPM, Portfolio Theory, Risk, Options.

• Credit reduction due to overlap

  Overlap with VOA024

• Compulsory Activity

  Each student is required to submit a short report (of no more than one side of single spaced A4) for each of the practical sessions. This report should summarise the motivation, method used and results obtained, and offer a critical assessment of the limitations of the practical exercise. The deadline for each individual report is 24 hours after the practical class.

  Lectures and practicals will take place entirely face-to-face.

• Assessment

  Written group-based project. The groups must consist of 4-5 students. The deadline for submission of the project is about 2 weeks from its handout. The project in this course must be answered in English.

  An assessment in FIN10 will not be organised in the the non-teaching semester. As of autumn 2023, only mandatory bachelor courses with an individual assessment will have an assessment in the non-teaching semester. The retake options that apply at all times are decided by the dean for the bachelor program and will be published in the course description.

• Grading Scale

  Grading scale A - F

• Computer tools

  The course will introduce students to VBA.

  During the practicals, computers are essential. Please note that Apple Macs have encountered quite a few problems with some functions in Excel such as Solver.

• Literature

  Benninga, S., 2008, Financial Modeling MIT Press, third or more recent edition, 2008.