Financial Economics and Asset Pricing - ECON5630

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Module delivery information

Location Term Level1 Credits (ECTS)2 Current Convenor3 2024 to 2025
Spring Term 6 15 (7.5) Katsuyuki Shibayama checkmark-circle


The module develops skills in asset pricing and an understanding of the theoretical basis of the theory behind it. The module requires knowledge of some mathematical techniques but stresses practical training in asset pricing with a focus on the intuitions and heuristics behind theorems and formulae, rather than their rigorous derivations and semantic definitions

There are three key topics; (i) investors' optimisation, (ii) discrete time models and (iii) option Greeks and option strategies. For (i), the module first introduces the basic financial economics, and, based on it, we establish the basis of the risk-neutral probability. For (ii), the module discusses how to construct the tree model based on the historical price data, and shows that the model can be used to find the fair prices of a wide range of financial derivatives. For (iii), the module investigates the Black-Scholes-Merton (BSM) formula, and then how to use it to find the optimal hedge ratio for delta hedging. In this respect, the module also discusses how to use the return correlations to find the optimal hedge ratio.


Contact hours

Private Study: 131 hours
Contact Hours: 19 hours
Total: 150 hours


Compulsory to the following courses:
• BSc Financial Economics with Econometrics

Optional to the following courses:
• all other Single and Joint Honours Degree courses in Economics

The module is NOT available to students across other degree courses in the University

Method of assessment

Main Assessment Methods:

In Course Test, (45 minutes) (10%)
Online Test (10%)
Examination, 2 hours (80%)

Reassessment: 100% exam

*Exams will be in-person*

Indicative reading

See the library reading list for this module (Canterbury)

Learning outcomes

On successfully completing the module students will be able to:

1 Understand the basic concepts and issues in financial economics
2 Demonstrate critical understanding of decision making relevant to investment optimisation
3 Demonstrate knowledge and understanding of the principles of risk neutral asset pricing
4 Understood the principles underlying numerical computation of asset prices
5 Demonstrate analytical and numerical skills through analyses of asset pricing relevant to the working of financial markets
6 Solve analytical, numerical and computational asset pricing problems.


  1. Credit level 6. Higher level module usually taken in Stage 3 of an undergraduate degree.
  2. ECTS credits are recognised throughout the EU and allow you to transfer credit easily from one university to another.
  3. The named convenor is the convenor for the current academic session.
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