180.367 - Investments and Portfolio Management

This is an introductory course in investments. The course is broken into four parts. The first part covers the fundamental concepts of asset returns, risk, and risk-aversion, and then studies how investors should optimally choose their portfolios given the observed patterns of risk and return. The second part of the course studies the reverse question: given how investors choose their portfolios, what are the equilibrium patterns of risk and expected return in financial markets: in other words, what is the expected return that various types of assets must earn to compensate investors for bearing their risk. The second question is studied in the context of two theories of returns: the capital asset pricing model and arbitrage pricing theory. The third part of the course studies the empirical evidence for and against the equilibrium theories of asset returns, with an emphasis on the evidence in support and against the efficient markets hypothesis. The fourth and final part of the course studies three classes of assets in more detail. The topics that are covered include models of equity valuation, bond valuation and hedging, and option valuation and hedging.

Syllabus (PDF Copy)

Course Slides

Problem Sets
Problem Set 1     Solutions to Problem Set 1
Problem Set 2     Solutions to Problem Set 2     Spreadsheet
Problem Set 3     Solutions to Problem Set 3
Problem Set 4     Solutions to Problem Set 4
Problem Set 5

Exams
Midterm Exam (solutions included)

Other Materials
Spreadsheet on Long Run Investment
Spreadsheet on Calculating Optimal Portfolios of Risky Assets
Mathematical Derivation of Risky Portfolio that Maximises Sharpe Ratio (PDF copy)
Spreadsheet on Efficient Frontier varying correlation coefficient
Example of Optimal Portfolio with Single Index Model
Spreadsheet on Black Scholes