NOTE: This course is required for enrollment in most upper-level finance courses (8300 and 9300) and must be taken prior to or concurrently with any upper-level finance course. It is not required for upper-level economics courses (8200 and 9200).

This is a first course in capital markets and investments. The course has three principal goals: 

1. To introduce the principles of asset valuation from an applied perspective. The majority of the class is concerned with the valuation of financial securities. The valuation issues to be discussed are heavily used in portfolio management and risk management applications.
2. To introduce the following concepts:
   • Arbitrage. 
   • The term structure of interest rates. 
   • Portfolio theory, risk-control, and diversification.
   • Equilibrium asset pricing models; the CAPM. 
   • Efficient and inefficient markets. 
   • Performance evaluation. 
   • Pricing and hedging basic derivative securities (futures and options)
3. To provide sufficient background knowledge for students seeking an overview of capital markets and an introduction to advanced finance courses.

Michael Johannes

Ann F. Kaplan Professor of Business

Professor Johannes’s research analyzes the empirical content of fixed-income and derivative securities pricing models. He is particularly interested in developing econometric methods to investigate models with jumps and stochastic volatility. Johannes teaches the elective Capital Markets and Investments.

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