Valuation in Financial Markets
Spring 2007
Instructors: Robert Harris and Michael Ho
Course Description:
This course focuses on how financial assets and firms are valued in financial markets. We broaden the portfolio of valuation techniques developed in the required curriculum (specifically in the Financial Management and Policies course) and apply these methods to a range of financial data and assets. The course serves as background for other finance elective courses and builds skills in key valuation principles such as options pricing and enterprise valuation. We emphasize the economic underpinning and application of valuation techniques.
The course is organized in two modules. The first concentrates on valuing traded financial assets in the fixed income and options markets. These assets have precisely defined payoffs and often involve fairly complicated structures. The second module focuses on valuing entire companies and the implication for stock prices. We pay particular attention to different ways to deal with the impacts of both operating results and financial structure on market prices.
Requirements:
Students are expected to be prepared for each class. Grading will be based on class participation (25%), two problem sets (20%) and two comprehensive assignments, one at the end of each module (55%). For some sessions, preparation involves reading technical notes and applying techniques to specific problems. Other sessions tackle comprehensive cases. Some readings are from Brealey, Myers and Allen, Principles of Corporate Finance (8th edition, hereafter BMA) which the finance faculty recommend as a reference for use in finance electives and on the job. (BMA was also recommended in the Financial Management and Policies course syllabus).