Financial investments 2600-IADz1IF

Lecture
1. Introduction to investment theory. Investor goals and limitations.
- Definition and features of financial investments
- Classification of financial assets
- Conditions of financial investments
- Securities and markets
2. Criteria for investment decisions.
- Classification of rates of return (nominal, real, risk-free rate, risk premium)
- The concept of expected rate of return
- Distribution of investment return rates (characteristics of normal distribution - kurtosis, skewness), Value-at-Risk
- Types of investment risk and risk measures (variance, standard deviation)
- Risk diversification - classification (covariance and correlation coefficients of returns)
3. Investments in debt instruments.
- Classification and structure of interest rates (spot interest rate structure, term structure of interest rates)
- Theories on shaping interest rates (liquidity preferences, segmentation, expectations)
- Features of the debt instrument (price, profitability)
- Bond pricing model
- Analysis of the sensitivity of bonds to changes in interest rates
4. Investments in equity instruments.
- Types and features of equity instruments
- Systematic and unsystematic risk
- Beta coefficient
- Asset pricing models (Sharpe, Markowitz, CAPM single-index model, CML capital market line and SML securities market line, efficient frontier)
- The concept of capital market efficiency
- Assumptions and basics of technical and fundamental analysis, stock market indicators.
5. Traditional and avant-garde measures of financial investment effectiveness.
- The concept of benchmark, tracking error
- Performance indicators (Sharpa, Sortino, Jensen, Treynor)
6. Investment risk management using futures contracts.
- Forward/futures contracts characteristics
- Futures contract valuation model
- The use of futures contracts to hedge risk
7. Analysis and application of swaps and options.
- Interest rate swap
- Currency swap
- Characteristics and application of options
- Payout functions, rights and obligations of the parties to the transaction

Exercises
1. Tasks related to making investment decisions, including:
- Classification of rates of return (nominal, real, risk-free rate, risk premium)
- The concept of expected rate of return
- Distribution of investment return rates (characteristics of normal distribution - kurtosis, skewness), Value-at-Risk
- Types of investment risk and risk measures (variance, standard deviation)
- Risk diversification - classification (covariance and correlation coefficients of returns)
2. Examples of debt investments, including:
- Features of the debt instrument (price, profitability)
- Bond pricing model
- Analysis of the sensitivity of bonds to changes in interest rates
3. Examples of equity investments, including:
- Beta coefficient
- Asset pricing models (Sharpe, Markowitz, CAPM single-index model, CML capital market line and SML securities market line, efficient frontier)
- Assumptions and basics of technical and fundamental analysis, stock market indicators.
4. Calculation of the financial investment efficiency measure, including:
- The concept of benchmark, tracking error
- Performance indicators (Sharpa, Sortino, Jensen, Treynor)
5. Investment risk management using futures contracts.
- Forward/futures contracts characteristics
- Futures contract valuation model
- The use of futures contracts to hedge risk
6. Analysis and application of swaps and options.
- Interest rate swap
- Currency swap
- Characteristics and application of options
- Payout functions, rights and obligations of the parties to the transaction

Term 2025Z:

Lecture
1. Introduction to investment theory. Investor goals and constraints.
o Definition and features of financial investments
o Classification of financial assets
o Determinants of financial investments
o Securities and markets
2. Investment decision criteria.
o Classification of rates of return (nominal, real, risk-free rate, risk premium)
o Concept of expected rate of return
o Distribution of investment rates of return (characteristics of normal distribution – kurtosis, skewness), Value-at-Risk (VaR)
o Types of investment risk and risk metrics (variance, standard deviation)
o Risk diversification - classification (covariance and correlation coefficients of rates of return)
3. Investments in debt instruments.
o Classification and structure of interest rates (spot interest rate structure, term structure of interest rates)
o Theories on interest rate formation (liquidity preference, market segmentation, expectations theory)
o Features of a debt instrument (price, yield)
o Bond valuation model
o Sensitivity analysis of bonds to interest rate changes
4. Investments in equity instruments.
o Types and features of equity instruments
o Systematic and unsystematic risk
o Beta coefficient
o Asset pricing models (Sharpe’s single-index model, Markowitz model, CAPM, Capital Market Line - CML, and Security Market Line - SML, efficient frontier)
o Concept of capital market efficiency
o Assumptions and fundamentals of technical and fundamental analysis, stock market indicators
5. Traditional and advanced measures of financial investment efficiency (performance).
o Concept of benchmark, tracking error
o Performance ratios (Sharpe, Sortino, Jensen, Treynor)
6. Investment risk management using forward/futures contracts.
o Characteristics of forward/futures contracts
o Valuation model of a forward/futures contract
o Application of forward/futures contracts for risk hedging
7. Analysis and application of swap and option transactions.
o Interest rate swap
o Currency swap
o Characteristics and application of options
o Payoff functions, rights and obligations of the contracting parties
Tutorials (Classes)
1. Exercises on making investment decisions, including:
o Classification of rates of return (nominal, real, risk-free rate, risk premium)
o Concept of expected rate of return
o Distribution of investment rates of return (characteristics of normal distribution – kurtosis, skewness), Value-at-Risk
o Types of investment risk and risk metrics (variance, standard deviation)
o Risk diversification - classification (covariance and correlation coefficients of rates of return)
2. Examples of investments in debt instruments, including:
o Features of a debt instrument (price, yield)
o Bond valuation model
o Sensitivity analysis of bonds to interest rate changes
3. Examples of investments in equity instruments, including:
o Beta coefficient
o Asset pricing models (Sharpe’s single-index model, Markowitz model, CAPM, Capital Market Line - CML, and Security Market Line - SML, efficient frontier)
o Assumptions and fundamentals of technical and fundamental analysis, stock market indicators
4. Calculation of financial investment performance measures, including:
o Concept of benchmark, tracking error
o Performance ratios (Sharpe, Sortino, Jensen, Treynor)
5. Investment risk management using forward/futures contracts:
o Characteristics of forward/futures contracts
o Valuation model of a forward/futures contract
o Application of forward/futures contracts for risk hedging
6. Analysis and application of swap and option transactions:
o Interest rate swap
o Currency swap
o Characteristics and application of options
o Payoff functions, rights and obligations of the contracting parties

Course coordinators

Renata Karkowska

Type of course

obligatory courses

Learning outcomes

Upon completion of the course the student:
in terms of knowledge:

describes basic concepts related to financial investments, such as classification of financial assets, securities, and markets (K_W01)
explains the concept of expected return (K_W01)
K_W02 the principles, procedures, and practices regarding investments and data analysis in a profound manner.
describes the characteristics of the distribution of returns (kurtosis, skewness) and the Value-at-Risk method (K_W03)
classifies returns (nominal, real, risk-free rate, risk premium) (K_W03)
identifies types of investment risk (K_W03)
discusses risk measures such as variance and standard deviation (K_W03)
presents theories regarding the formation of interest rates (liquidity preference, segmentation, expectations) (K_W03)
describes the fundamentals of asset pricing models, such as the Sharpe model, Markowitz model, CAPM, Capital Market Line (CML), and Security Market Line (SML) (K_W03)
characterizes performance indicators such as Sharpe, Sortino, Jensen, and Treynor ratios (K_W03)
explains the application of futures contracts for hedging risk (K_W03)
presents types of swaps (interest rate, currency) (K_W03)
characterizes payout functions, rights, and obligations of parties in options transactions (K_W03)
K_W05 complex technological, social, political, legal, economic, and ecological processes and phenomena, including fundamental dilemmas of modern civilization and their impact on financial decisions in organizations, the functioning of the economy as a whole, and organizations in terms of building information systems.

in terms of skills:
analyzes the classification of returns (nominal, real, risk-free rate, risk premium) in the context of making investment decisions (K_U01)
identifies types of investment risk (K_U01)
measures risk using variance and standard deviation (K_U01)
utilizes covariance and correlation coefficients to diversify risk in an investment portfolio (K_U01)
calculates the expected return based on historical data and market forecasts (K_U02)
applies asset pricing models (e.g., Sharpe single-index model, Markowitz model, CAPM) to evaluate investments (K_U02)
calculates the effectiveness of financial investments using indicators such as Sharpe, Sortino, Jensen, and Treynor ratios (K_U02)
K_U03: applying appropriate selection of sources and adapting existing or developing new methods and tools, including advanced information and communication techniques, to identify, diagnose, and solve problems related to financial decisions in investments and data analysis.

K_U05: proposing solutions to tasks embedded in unpredictable conditions.
in terms of social competencies:

assesses the effectiveness of various investment performance indicators (Sharpe, Sortino, Jensen, Treynor) and their application in financial practice (K_K01)
evaluates the impact of using futures contracts and swaps in managing investment risk on a company's financial strategy (K_K01)
K_K02: recognizing the importance and value of scientific knowledge in the context of solving complex problems related to investments and data analysis in an organization, as well as consulting experts in this process.

K_K03: initiating activities that benefit the community, society, or the environment, as well as initiating actions for the common good.

Assessment criteria

written exam (open and closed questions)
Written exam in stationary or remote form on the Kampus platform
Completing the exercises remotely on the Kampus platform.
colloquium 80%, 20% activity during classes (exercises, case studies), additional project (group work), attendance at classes.

Bibliography

Basic item:
Francis J.C. Inwestycje. Analiza i zarządzanie, WIG Press 2000
Additional items:
Haugen R. A., Teoria nowoczesnego inwestowania, WIG PRESS 1996
Jajuga K., Jajuga T., Inwestycje, Wydawnictwo Naukowe PWN, Warszawa 2010
Sopoćko A., Rynkowe instrumenty finansowe, Wydawnictwo Naukowe PWN, Warszawa 2010 Bodie, Kane, Marcus 2018, Essential of Investments, Mc Grow Hill Education

Term 2025Z:

Primary literature:
- Francis J.C., Inwestycje. Analiza i zarządzanie, WIG Press 2000
- Jajuga K., Jajuga T., Inwestycje, Wydawnictwo Naukowe PWN, Warszawa 2010

Supplementary literature:
- Haugen R. A., Teoria nowoczesnego inwestowania, WIG PRESS 1996
- Sopoćko A., Rynkowe instrumenty finansowe, Wydawnictwo Naukowe PWN, Warszawa 2010
- Bodie, Kane, Marcus 2018, Essentials of Investments, McGraw-Hill Education