Concordia University - FINA 385: Theory of Finance I

FINA 385: Theory of Finance I is the first of two that provide a theoretical foundation upon which subsequent 400 level courses will be built. The course explores how capital is allocated in financial markets and how the relative prices of financial assets are determined. Main topics to be covered include utility theory, arbitrage pricing theory (APT), and asset pricing models such as the Capital Asset Pricing Model (CAPM) and option pricing models. Practical applications are emphasized, including arbitrage, market design, and how individuals and firms strategically respond to market changes and imperfections. Additional areas of study include portfolio theory, bond yields and duration, and option pricing theory.

By the end of the course, you will be able to apply CAPM and other multifactor models to estimate returns, compute forward rates using bond bootstrapping, and determine risk-premium, expected return, and certainty equivalents for risky investments. You will analyze various risk metrics, including standard deviation, skewness, kurtosis, the Sharpe ratio, the Treynor measure, and Value at Risk (VaR). You will also determine risk premia within the Ross APT framework and price European options using the Binomial and Black-Scholes models. In addition, you will conduct regression analysis on multifactor asset pricing models, interpret the results, and perform first-order unconstrained optimization in financial decision-making. Prerequisites for this course include COMM 220 and COMM 308.