Financial investments 2600-MFBRz1IF
Lecture
1. Introduction to investment theory. Investors' goals and constraints.
- Definition and characteristics of financial investments
- Classification of financial assets
- Determinants 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 returns (characteristics of the 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 rates of return)
3. Investments in debt instruments.
- Classification and structure of interest rates (spot interest rate structure, term structure of interest rates)
- Theories regarding the formation of interest rates (liquidity preference, market segmentation, expectations theories)
- Characteristics of a debt instrument (price, yield)
- Bond valuation model
- Sensitivity analysis of bonds to interest rate changes
4. Investments in equity instruments.
- Types and characteristics of equity instruments
- Systematic and unsystematic risk
- Beta coefficient
- Asset pricing models (Sharpe's single-index model, Markowitz model, CAPM, Capital Market Line – CML, and Security Market Line – SML, efficient frontier)
- The concept of capital market efficiency
- Assumptions and basics of technical and fundamental analysis, stock market indicators.
5. Traditional and advanced measures of financial investment efficiency.
- The concept of a benchmark, tracking error
- Performance/efficiency ratios (Sharpe, Sortino, Jensen, Treynor)
6. Investment risk management using forward/futures contracts.
- Characteristics of forward/futures contracts
- Valuation model of a forward/futures contract
- Application of forward/futures contracts for risk hedging
7. Analysis and application of swap transactions and options.
- Interest rate swap
- Currency swap
- Characteristics and application of options
- Payoff functions, rights, and obligations of the parties to the transaction
Classes / Tutorials
1. Exercises on 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 returns (characteristics of the 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 rates of return)
2. Examples of investments in debt instruments, including:
- Characteristics of a debt instrument (price, yield)
- Bond valuation model
- Sensitivity analysis of bonds to interest rate changes
3. Examples of investments in equity instruments, including:
- Beta coefficient
- Asset pricing models (Sharpe's single-index model, Markowitz model, CAPM, Capital Market Line – CML, and Security Market Line – SML, efficient frontier)
- Assumptions and basics of technical and fundamental analysis, stock market indicators.
4. Calculation of financial investment efficiency measures, including:
- The concept of a benchmark, tracking error
- Performance/efficiency ratios (Sharpe, Sortino, Jensen, Treynor)
5. Investment risk management using forward/futures contracts.
- Characteristics of forward/futures contracts
- Valuation model of a forward/futures contract
- Application of forward/futures contracts for risk hedging
6. Analysis and application of swap transactions and options.
- Interest rate swap
- Currency swap
- Characteristics and application of options
- Payoff functions, rights, and obligations of the parties to the transaction
Course coordinators
Type of course
Learning outcomes
- characterizes the basic concepts related to financial investments, such as the classification of financial assets, securities, and markets (K_W01)
- explains the concept of expected rate of return (K_W01)
- describes the characteristics of the distribution of rates of return (kurtosis, skewness) and the Value-at-Risk method (K_W03)
- classifies rates of return (nominal, real, risk-free rate, risk premium) (K_W03)
- indicates 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, market segmentation, expectations theories) (K_W03)
- describes the basics of asset pricing models, such as the Sharpe, Markowitz, CAPM models, Capital Market Line (CML), and Security Market Line (SML) (K_W03)
- characterizes efficiency indicators, such as Sharpe, Sortino, Jensen, Treynor (K_W03)
- explains the application of forward/futures contracts for risk hedging (K_W03)
- presents the types of swap transactions (interest rate swap, currency swap) (K_W03)
- characterizes payoff functions, rights, and obligations of the parties in option transactions (K_W03)
- analyzes the classification of rates of return (nominal, real, risk-free rate, risk premium) in the context of investment decision-making (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 rate of return based on historical data and market forecasts (K_U02)
- applies asset pricing models (e.g., Sharpe's single-index model, Markowitz, CAPM) to evaluate investments (K_U02)
- calculates the efficiency of financial investments using indicators such as Sharpe, Sortino, Jensen, Treynor (K_U02)
- develops risk-hedging strategies using forward/futures contracts (K_U06)
- develops payoff functions as well as the rights and obligations of the parties to the transaction (K_U06)
- evaluates the effectiveness of various investment efficiency indicators (Sharpe, Sortino, Jensen, Treynor) and their application in financial practice (K_K01)
- evaluates the impact of using forward/futures contracts and swaps in investment risk management on the company's financial strategy (K_K01)
- analyzes investment opportunities in various financial asset classes, taking into account economic and political conditions on a national and global scale (K_K04)
- formulates conclusions regarding ethics and responsibility in financial decision-making based on complex situations related to financial markets (K_K05)
Assessment criteria
1) Written exam (open-ended and closed-ended questions) in a traditional (in-person) format or remotely on the Kampus platform.
2) Classes / Tutorials:
- written test to pass the classes (open-ended and closed-ended questions) in a traditional or remote format on the Kampus platform,
- class activity (exercises, case studies),
- project (group work),
- class attendance.
Bibliography
Primary sources:
- 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.