Theoretical Foundations of Finance

Code:

2FI01

Acronym:

TFF

Keywords
Classification	Keyword
OFICIAL	Management Studies

Instance: 2013/2014 - 1S (of 09-09-2013 to 20-12-2013)

Active?	Yes
Responsible unit:	Management
Course/CS Responsible:	Master in Finance

Cycles of Study/Courses

Acronym	No. of Students	Study Plan	Curricular Years	Credits UCN	Credits ECTS	Contact hours	Total Time
MIF	71	Bologna Official Syllabus	1	-	7,5	56	202,5

Teaching language

English

Objectives

Given the nature of the course, this unit is mainly theoretical. Its program aims at deepening the study of the main issues of the Theory of Finance, through a critical approach to its major proposals and problems. 

The program does not envisage a presentation of the basics of the discipline, although it will not go without ensuring, as often as possible, a quick review of the basic concepts and models.. 

Learning outcomes and competences

The main objective is to consolidate the knowledge of the students on Finance issues, and train them on a critical approach to those issues, so that they may later be able to undertake research work and, thus, questioning all certainties exhibited by a theoretical discipline which has been subject to a process of rapid development.

Working method

Presencial

Pre-requirements (prior knowledge) and co-requirements (common knowledge)

Students who are contacting the discipline for the first time are advised to begin by studying carefully a basic Finance text book, from the many available. The same can be said with respect to those who might have acquired their financial education too long ago and might need an updating. 

Program

1 . Introduction 
1.1 . The Scope and Paradigm of Financial Theory 
1.2 . Synthesis of the Basic Concepts of Financial Theory 
1.3 . The Evolution of Financial Theory and the State of the Art 
1.4 . Financial Markets and its Agents 
1.5 . Financial Securities 
1.6 . The Economics of Financial Markets 

2 . The Efficiency of Financial Markets 
2.1 . The Market Efficiency Hypothesis in Financial Theory 
2.2 . Definitions and Dimensions of Financial Markets Efficiency 
2.3 . Empirical Evidence on Financial Markets Efficiency 
2.4 . Markets Microstructure and its Influence on Prices 

3 . The Pricing of Financial Assets 
3.1 . A Critical Review of the Basic Concepts 
3.2 . The Capital Assets Pricing Models 
3.3 . Major Problems in Bond Valuation 
3.4 . Major Problems in Stock Valuation 

4 . Options Theory 
4.1 . A Critical Review of the Options Pricing Models 
4.2 . Extensions and Applications of the Black-Scholes Model 
4.3 . Extensions and Applications of the Binomial Model 
4.4 . Real Options and their Valuation 

5 . The Agency Theory 
5.1 . The Firm as a Nexus of Contracts and the Effect of Incomplete Contracts 
5.2 . Agency Costs 
5.3 . The Implications of the Agency Theory 
5.4 . The Corporate Governance 
5.5 . The Problems of Monitoring 

6 . Contract Theory 
6.1 . The Optimization of Contractual Relationships 
6.2 . Static Billateral Contracting 
6.3 . Static Multilateral Contracting 
6.4 . Incomplete Contracts 

7 . Financial Innovation and Markets Efficiency 
7.1 . Structured Financing 
7.2 . Equity Structures 
7.3 . Debt Structures 
7.4 . Asset Securitization 
7.5 . Project Finance 

8 . Behavioural Finance 
8.1 . The Foundations of Behavioural Finance 
8.2 . The Different Formulations of Behavioural Finance 
8.3 . Contradictions between Behavioural Finance and the Market Efficiency Hypothesis

Mandatory literature

Copeland, Thomas E., J. Fred Weston e Kuldeep Shastri; Financial Theory and Corporate Policy, Pearson-Addison Wesley, 2005. ISBN: 0-321-12721-8

Complementary Bibliography

Bolton, Patrick e Mathias Dewatripont; Contract Theory, The MIT Press, 2005. ISBN: 0-262-02576-0

Teaching methods and learning activities

The presentation of the program is mainly theoretical. However, an effort is made to establish a relationship with reality, through the presentation of case studies and real world problems, in order to demonstrate the relevance and usefulness of all the concepts, formulations and models offered nowadays by the Theory of Finance. 

The direct participation of students in the classroom is encouraged. Moreover, the classes are organized into working groups, each one of which must submit an applied research work on a subject that will be proposed to them. 

The program of the discipline will extend through fourteen lectures divided in two parts. Each lecture will be object of a summary text and of the indication of specific readings.

Evaluation Type

Distributed evaluation with final exam

Assessment Components

Designation	Weight (%)
Exame	50,00
Participação presencial	10,00
Trabalho escrito	40,00
Total:	100,00

Eligibility for exams

Students are evaluated on a continuous basis, taking into consideration their work across the whole course, either in the form of theoretical or applied group assignments or from their active participation during lectures. 

Moreover, every student will sit for a final performance evaluation exam.

Calculation formula of final grade

Students final marks will result from the weighted average of the marks assigned to the following factors: 

Final examination                                 50% 
Group assignment                                 40% 
Attendance and participation in lectures      10%