Postgraduate Course: Modern Portfolio Theory (MATH11067)
Course Outline
School  School of Mathematics 
College  College of Science and Engineering 
Course type  Standard 
Availability  Not available to visiting students 
Credit level (Normal year taken)  SCQF Level 11 (Postgraduate) 
Credits  15 
Home subject area  Mathematics 
Other subject area  Financial Mathematics 
Course website 
None 
Taught in Gaelic?  No 
Course description  This aim of this course is to provide postgraduate students with a broad knowledge of asset pricing and portfolio selection models. 
Entry Requirements (not applicable to Visiting Students)
Prerequisites 

Corequisites  
Prohibited Combinations  
Other requirements  MSc Financial Mathematics students only. 
Additional Costs  None 
Course Delivery Information

Delivery period: 2013/14 Semester 2, Not available to visiting students (SS1)

Learn enabled: No 
Quota: None 
Web Timetable 
Web Timetable 
Course Start Date 
15/01/2014 
Breakdown of Learning and Teaching activities (Further Info) 
Total Hours:
150
(
Lecture Hours 40,
Summative Assessment Hours 2,
Programme Level Learning and Teaching Hours 3,
Directed Learning and Independent Learning Hours
105 )

Additional Notes 
Examination takes place at HeriotWatt University.

Breakdown of Assessment Methods (Further Info) 
Written Exam
100 %,
Coursework
0 %,
Practical Exam
0 %

No Exam Information 
Summary of Intended Learning Outcomes
On completion of this course the student should be able to,
! Develop a critical understanding of the different forms of market efficiency and their economic implications;
! Derive the properties of a utility function;
! State the conditions for absolute, first order and second order stochastic dominance;
! Calculate some important measures of risk: variance, semivariance, shortfall probability and mean shortfall;
! Calculate the mean and variance of return on a portfolio of assets;
! Describe the purpose and calculation of the following: opportunity set, efficient frontier, indifference curve, separation theorem;
! Describe the properties of singlefactor and multifactor models. Show how to fit a singlefactor model to market price data;
! Discuss the assumptions underlying and applications of the Capital Asset Pricing Model and Arbitrage Pricing Theory;
! Derive the capital market line and the security market line. Derive the results of the twofactor Arbitrage Pricing Theory;
! State the weak, semistrong and strong forms of the efficient market hypotheses and discuss their economic implications;
! Develop a critical understanding of the different forms of market efficiency and their economic implications
! Derive the properties of a utility function;
! State the conditions for absolute, first order and second order stochastic dominance;
! Calculate some important measures of risk: variance, semivariance, shortfall probability and mean shortfall;
! Calculate the mean and variance of return on a portfolio of assets;
! Describe the purpose and calculation of the following: opportunity set, efficient frontier, indifference curve, separation theorem;
! Describe the properties of singlefactor and multifactor models. Show how to fit a singlefactor model to market price data;
! Discuss the assumptions underlying and applications of the Capital Asset Pricing Model and Arbitrage Pricing Theory;
! Derive the capital market line and the security market line. 
Assessment Information
See 'Breakdown of Assessment Methods' and 'Additional Notes' above. 
Special Arrangements
MSc Financial Mathematics students only. 
Additional Information
Academic description 
Not entered 
Syllabus 
Utility Theory.
Stochastic Dominance.
Measures of Investment Risk.
Portfolio Theory.
Models of Asset Returns.
Capital Asset Pricing Model.
Arbitrage Pricing Theory.
Evaluating Portfolio Performance. 
Transferable skills 
Not entered 
Reading list 
Elton, E., Gruber, M., Brown, S.J. & Goetzmann, W.N. (2006). Modern Portolio Theory and Investment Analysis, 6th edition. Wiley. 
Study Abroad 
Not entered 
Study Pattern 
Not entered 
Keywords  FMPT 
Contacts
Course organiser  Dr Sotirios Sabanis
Tel: (0131 6)50 5084
Email: S.Sabanis@ed.ac.uk 
Course secretary  Mrs Kathryn Mcphail
Tel: (0131 6)50 4885
Email: k.mcphail@ed.ac.uk 

