Asset Pricing Fundamentals from Coursera

The course Asset Pricing I will provide students with the main theoretical and analytical tools to study and understand the economics of financial markets and portfolio choices. After learning the different structure that financial markets can take and the key functions that these perform, learners will analyze how financial markets affect saving and investment decisions in an economy with no uncertainty.

Then, learners will be introduced to expected utility theory, which will provide them with the key analytical tools to study choices under uncertainty. These tools will then be used to model and analyze portfolio choices: first, learners will study the so-called canonical portfolio problem, that is, the problem of an investor who has to choose how to allocate their wealth between a safe and a risky asset; then, they will study portfolio choices that involve multiple risky assets.

The analysis of portfolio choices will allow learners to characterize and determine investors’ optimal demand for risky assets, which will lay the foundation for the analysis of the Capital Asset Pricing Model, a milestone for asset pricing and financial economics.

The analysis of the CAPM will finally teach learners how to characterize equilibrium returns and asset prices in financial markets, also understanding the key forces that govern these key variables.

What's inside

Syllabus

Week 1 - Functions of financial markets

By the end of this week, you will learn the various structures financial markets can adopt and comprehend their primary functions. You'll also be able to assess how the establishment of financial markets influences households' choices regarding saving and borrowing, along with companies' decisions regarding investment, all within an economy devoid of uncertainty.

Week 2 - Choice under uncertainty

This week you will learn the theoretical principles that underlie individual choices under uncertainty, that is, in the presence of risk, in light of expected utility theory. Additionally, you will examine how to characterize agents' attitudes towards risk and the primary criteria for comparing risky prospects. These criteria include first- and second-order stochastic dominance, as well as the mean-variance criterion.

Week 3 - Contingent claim markets

By the end of this week you will understand how to analyze contingent claim markets and the risk neutral evaluation.

Week 4 - Canonical portfolio problem

By the end of this week you will learn the principles underlying investors' portfolio choice and to analyze, in particular, how stock market participation depends on individual preferences and stocks' fundamentals (expected return and riskiness).

Week 5 - Mean-Variance analysis

By the end of this week you will be able to identify the set of efficient portfolios in an economy with many risky assets and to analyze, in this economy, the portfolio choices of investors with mean-variance preferences, so as to characterize stocks' aggregate demand.

Week 6 - The Capital Asset Pricing Model (CAPM)

By the end of this week, you will learn the concept of equilibrium in financial markets. You'll apply this understanding to an economy featuring numerous risky assets and a riskless asset, all within a framework of risk-averse investors with mean-variance preferences. Additionally, you'll gain the ability to calculate equilibrium prices and expected excess returns. Furthermore, you'll recognize that these values are contingent upon the covariance risk of assets, which is quantified by asset betas.

Good to know

Know what's good

, what to watch for

, and possible dealbreakers

Strong fit for intermediate learners and above as it builds on Expected Utility Theory studied in previous econ courses

Taught by Lorenzo Pandolfi, who is recognized for work in economics

Suitable for those in finance or looking to enter finance

Activities

Be better prepared before your course. Deepen your understanding during and after it. Supplement your coursework and achieve mastery of the topics covered in Asset Pricing Fundamentals with these activities:

Review calculus

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Refresh your calculus skills, which are essential for understanding the mathematical foundations of asset pricing models.

Browse courses on Calculus

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Review fundamental calculus concepts like derivatives, integrals, and optimization
Practice applying calculus to solve financial problems, such as calculating the expected return and risk of an asset
Ensure you are comfortable with using calculus to analyze functions and equations related to asset pricing

Review fundamental probability and statistics

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Refresh your knowledge of probability and statistics, which are foundational for understanding asset pricing models.

Browse courses on Probability

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Review basic probability concepts like probability distributions, expected value, and variance
Brush up on statistical concepts like hypothesis testing and regression analysis
Practice applying these concepts to financial data analysis

Compile a glossary of asset pricing terms

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Build a personalized resource by compiling a glossary of key terms and concepts related to asset pricing.

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Identify and collect relevant terms from course materials, textbooks, and online sources
Define each term clearly and concisely
Organize the glossary alphabetically or by topic

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Attend finance industry webinars

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Connect with industry professionals and gain insights into current trends in asset pricing through webinars.

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Identify relevant finance webinars hosted by reputable organizations
Register and attend the webinars
Engage in Q&A sessions to ask questions and learn from experts

Explore CAPM simulations

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Reinforce your understanding of the Capital Asset Pricing Model (CAPM) through guided tutorials and simulations.

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Follow tutorials on CAPM, equilibrium returns, and asset prices
Utilize CAPM simulations to visualize the relationship between beta and expected returns
Experiment with different risk-free rates and market risk premiums to see their effects on CAPM

Practice creating efficient portfolios

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Engage in practice drills to strengthen your understanding of portfolio theory and the concepts of efficient portfolios.

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Review the concept of efficient portfolios
Practice constructing efficient portfolios using different expected returns and risk levels
Analyze the impact of changes in expected returns and risk levels on portfolio efficiency

Develop a risk assessment tool

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Create a risk assessment tool to apply the principles of choice under uncertainty and expected utility theory.

Browse courses on Risk and Return

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Identify the necessary criteria for assessing risk
Design a questionnaire or tool to gather relevant data from investors
Develop an algorithm or model to quantify risk levels based on the collected data
Test and refine the risk assessment tool using real-world data

Prepare a white paper on portfolio optimization

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Synthesize your knowledge of portfolio optimization into a comprehensive white paper, demonstrating your grasp of asset pricing concepts.

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Review and analyze existing literature on portfolio optimization
Develop a framework or model for optimizing portfolios
Apply the framework to different scenarios and case studies
Present the results in a clear and concise white paper, including key takeaways and implications

Participate in financial literacy programs

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Share your knowledge of asset pricing and contribute to financial literacy by volunteering in programs.

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Research and identify financial literacy programs in your area
Contact the organizations and offer your services as a volunteer
Contribute to the programs by teaching basic asset pricing concepts or assisting participants with financial planning

Career center

Learners who complete Asset Pricing Fundamentals will develop knowledge and skills that may be useful to these careers:

Quantitative Analyst

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See salaries and explore the career path for Quantitative Analyst

Actuary

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Hedge Fund Manager

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Insurance Analyst

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Portfolio Manager

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Risk Manager

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Financial Economist

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Data Scientist

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Financial Risk Analyst

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Financial Planner

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Investment Banker

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Private Equity Associate

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Auditor

The Auditor is responsible for examining and evaluating the financial records of an organization. A course like this would be useful because it provides a strong foundation in the theory and practice of accounting and auditing. This knowledge would help the Auditor to identify and assess financial risks.

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Compliance Officer

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Investment Analyst

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Asset Pricing Fundamentals

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