Asset Pricing Models

This course is part of Finance Specialization

Instructor: Giovanni Walter Puopolo

What you'll learn

Understand the principles connected to investors' portfolio choices and the criteria that determine the prices of financial instruments
Understand the main functions performed by the financial markets
Analyzing how their introduction influences the households' savings choices and companies' investment in an economy without uncertainty

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Assessments

16 assignments

Taught in English

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There are 5 modules in this course

The course covers several advanced topics in asset pricing, trading-off risks and return, and portfolio optimization. More precisely, students will first analyze two relevant extensions of the Capital Asset Pricing Model (CAPM) and learn how to determine the corresponding equilibrium in financial markets.

Next, they will learn how to estimate empirically the risk-return relationship predicted by the Capital Asset Pricing Model. Students will also analyze two pricing models alternative to the CAPM. In the Arbitrage Pricing Theory, they will learn how to determine assets expected returns based on multiple risk factors and absence of arbitrage opportunities. In the Consumption Capital Asset Pricing Model, instead, they will learn how to solve the investors' joint consumption/investment decision problem and how to compute the equilibrium asset prices and expected returns in a dynamic pure exchange economy. Finally, the course concludes with a focus on the pricing of fixed income instruments.

By the end of this week you will learn: how to determine the equilibrium in financial markets under two distinct scenarios within the Capital Asset Pricing Model framework. First, you'll explore equilibrium determination when there is an absence of a riskless security. Second, you'll delve into the complexities of equilibrium determination when investors' preferences are dynamic, and stock returns follow a normal distribution.

What's included

19 videos3 readings3 assignments

19 videosTotal 39 minutes

Introduction1 minutePreview module
Introduction0 minutes
Financial Markets with no riskless (safe) asset1 minute
Zero Beta Portfolio2 minutes
CAPM without riskless asset1 minute
Risk-return tradeoff without a riskless asset /11 minute
Risk-return tradeoff without a riskless asset /24 minutes
Risk-return tradeoff without a riskless asset /35 minutes
Risk-return tradeoff without a riskless asset /44 minutes
The importance of short selling0 minutes
Asset prices under normal distribution1 minute
Log Returns2 minutes
Merton's Intertemporal CAPM - step 11 minute
Merton's Intertemporal CAPM - step 22 minutes
Merton's Intertemporal CAPM - step 31 minute
Merton's Intertemporal CAPM - step 41 minute
Optimal Portfolio Shares1 minute
Equilibrium stock returns - Constant Investment opportunity Set1 minute
Equilibrium stock returns - Time-Varying riskfree rate1 minute

3 readingsTotal 21 minutes

Zero Beta CAPM10 minutes
Intertemporal CAPM10 minutes
To sum up1 minute

3 assignmentsTotal 49 minutes

Zero Beta CAPM15 minutes
Intertemporal CAPM4 minutes
Capital Asset Pricing Model (CAPM) Extensions30 minutes

By the end of this week you will learn how to estimate empirically the risk-return relationship predicted by the Capital Asset Pricing Model

What's included

17 videos4 readings3 assignments

17 videosTotal 25 minutes

Introduction1 minutePreview module
Realized returns and the CAPM1 minute
The Market Model /13 minutes
The Market Model /21 minute
Empirical tests of the CAPM2 minutes
Roll Critique /11 minute
Roll Critique /2 1 minute
Roll Critique /31 minute
Time - series regressions /12 minutes
Time - series regressions /21 minute
Time - series regressions /32 minutes
Time - series regressions /41 minute
Cross - sectional regressions /11 minute
Cross - sectional regressions /21 minute
Cross - sectional regressions /30 minutes
Fama - MacBeth Method1 minute
General Findings 1 minute

4 readingsTotal 10 minutes

Testable implication of the CAPM3 minutes
Roll Critique1 minute
Testing Methodologies5 minutes
To sum up1 minute

3 assignmentsTotal 45 minutes

Testable implication of the CAPM15 minutes
Testing Methodologies15 minutes
Testing the Capital Asset Pricing Model (CAPM)15 minutes

By the end of this week you will learn how to determine assets expected returns based on multiple risk factors and absence of arbitrage opportunities

What's included

24 videos4 readings4 assignments

24 videosTotal 35 minutes

Introduction1 minutePreview module
Definition of Arbitrage /11 minute
Definition of Arbitrage /21 minute
The Arbitrage Pricing Theory2 minutes
The dynamics of realized returns /1 2 minutes
The dynamics of realized returns /22 minutes
Assumptions of APT 1 minute
The Market Model /12 minutes
The Market Model /22 minutes
The Market Model /31 minute
The Market Model /41 minute
The Market Model /50 minutes
Two Factors Model /11 minute
Two Factors Model /21 minute
Two Factors Model /30 minutes
Two Factors Model /41 minute
Two Factors Model /51 minute
The general case /11 minute
The general case /22 minutes
The general case /30 minutes
Strength and Weaknesses of APT1 minute
Chen, Roll and Ross (1986)1 minute
Fama and French (1993)1 minute
Statistical Approach0 minutes

4 readingsTotal 38 minutes

The APT model and definition of arbitrage3 minutes
The market model10 minutes
Multiple risks factors15 minutes
To sum up10 minutes

4 assignmentsTotal 60 minutes

The APT model and definition of arbitrage10 minutes
The market model10 minutes
Multiple risks factors10 minutes
The Arbitrage Pricing Theory (APT)30 minutes

By the end of this week, you will acquire a comprehensive understanding of determining equilibrium in a collaborative exchange economy, where agents make joint decisions on consumption and financial asset investment. Additionally, you will learn how to compute equilibrium asset prices and expected returns.

What's included

22 videos4 readings3 assignments

22 videosTotal 31 minutes

Introduction1 minutePreview module
The CAPM assumptions1 minute
Empirical failures of the CAPM1 minute
Explore new directions1 minute
A simplified Lucas tree economy /12 minutes
A simplified Lucas tree economy /21 minute
Solving the model1 minute
Equilibrium in the markets1 minute
Equilibrium prices1 minute
Equilibrium expected returns0 minutes
Extending the model to N risky assets1 minute
Solving the model and equilibrium prices1 minute
Including also a safe asset1 minute
Dynamic Lucas tree economy2 minutes
The investor dynamic problem /11 minute
The investor dynamic problem /21 minute
The investor dynamic problem /31 minute
The investor dynamic problem /41 minute
The investor dynamic problem /50 minutes
Equilibrium returns /10 minutes
Equilibrium returns /21 minute
Equilibrium returns /30 minutes

4 readingsTotal 31 minutes

Static CCAPM10 minutes
Dynamic CCAPM10 minutes
The Equity Premium Puzzle10 minutes
To sum up1 minute

3 assignmentsTotal 55 minutes

Static CCAPM15 minutes
Dynamic CCAPM10 minutes
The Consumption Capital Asset Pricing Model (CCAPM)30 minutes

By the end of this week, you will gain a comprehensive knowledge of fixed income securities, including an understanding of their diverse characteristics, and the ability to assess their pricing and implied returns