Course Outline CEMLA: Financial Markets

Monday, November 30th

 

Opening Remarks
Dr. Santiago García Verdú, Asesor del Director General, CEMLA

Session 1: Introduction to Financial Markets, the Present Value Model and the Bond Market
We explore the relationship between the value of money today and its value in the future. We analyze the Treasury, corporate and international bond markets. We turn next to bond pricing.

Session 2: The Term Structure of Interest Rates and Bond Portfolios
We attempt to identify the factors that account for the pattern of interest rates. We discuss the sensitivity of bond prices to interest rate fluctuations.

First day ends.

 

Tuesday, December 1st

 

Session 3: The Stock Market, Common Stocks, Valuation, Risk and Return
We look at how stocks are traded. Then we explain the principles of share valuation. We introduce the concept of risk, the relationship between risk and expected return, and diversification.

Session 4: Portfolio Theory and Practice
We learn about portfolio selection and how to measure the risk of a portfolio. We present leading theories that link risk and return in a competitive economy. We show how an optimal portfolio allocation depends not only on the risk-return tradeoff but also on the investor’s tolerance toward risk.

Second day ends.

 

Wednesday, December 2nd

 

Session 5: The Capital Asset Pricing Model (CAPM)
We learn about equilibrium models that give us a precise prediction of the relationship we should observe between the risk of an asset and its expected return.

Session 6: The Arbitrage Pricing Theory (APT) and Factor Investing
We show how no-arbitrage conditions, allow us to generalize CAPM to gain richer insight into the risk-return relationship. Multifactor models can be used to measure and manage exposure to each of many economywide factors.

Third day ends

 

Thursday, December 3rd

 

Session 7: Active Portfolio Management and Portfolio Performance Evaluation
Most financial assets are managed by professional investors. Efficient allocation depends on the quality of these professionals. We look at techniques that can help us evaluate the performance of professional investors.

Session 8: Efficient Market Hypothesis and Behavioral Finance
We show how competition among analysts leads naturally to market efficiency, and we examine the implications of the efficient market hypothesis for investment policy. We will examine some anomalies in financial markets that can be explained as potential failure of the efficient market hypothesis.

Fourth day ends.

 

Friday, December 4th

 

Session 9: Forwards and the Futures Market
We describe the workings of futures markets. We show how futures contracts are useful investment vehicles for both hedgers and speculators and how the futures price relates to the spot price of an asset. We also show how futures can be used in several risk-management and investment applications.

 

Session 10: The Option Market
We explain how puts and calls work and examine their investment characteristics. We then move on to option valuation models. We look at some of the most important applications of option-pricing theory in portfolio management and control.

Fifth day and course end.