Topic outline

  • Why take this course in investment science?

    Investment science refers to the application of mathematical modeling for the purpose of informing investment decisions. This course is focused on financial investments, including investments into securities such as bonds and stocks, as well as derivative securities such as forwards, futures, swaps, and options. 

    The analysis of investment decisions requires a sound understanding of cash flow dynamics, stochastic processes, pricing, and valuation of investments. This course gives a well-rounded introduction to all these topics, thus ensuring that the students master these fundamental concepts of investment science and are able to apply them successfully in practice.

    Taking this course in 2022

    We welcome you to this course which is taught through normal lectures and exercise sessions.  The first lecture will be held on 5 September at 10:15 in lecture hall U3 (Otakaari 1).

    The topics of the course include

    • deterministic cash flows (e.g. net present value, interest rate analysis)
    • single period random cash flows (Markowitz mean-variance portfolio theory, capital asset pricing model)
    • derivative securities and investment hedging
    • multiperiod random cash flows (discrete and continuous)
    • arbitrage pricing theory and risk-neutral valuation
    • pricing of options and real options, and the Black-Scholes equation


    Textbook

    D.G. Luenberger: Investment Science, Oxford University Press, 1998 (or newer editions).

    Grading

    The course is graded on a scale of 0-5 based on a Final Exam (30 p/75 %) and homework (scaled to 10 p/25%). 

    The homework consists of 8 assignments that each yield 0-6 points + 2 extra points for willingness to present demo exercises related to the assignments. 

    The course may feature activities that will reward extra points. You will be notified of these arrangements if this is the case. These points will be appropriately added to the total course points.

    The points are valid until the start of the next course.

    Course staff

    Lecturer:  Professor Ahti Salo (forename.surname@aalto.fi)

    Assistant: MSc Leevi Olander (forename.surname@aalto.fi)
                    BSc Jaakko Wallenius (forename.surname@aalto.fi)

    Reception hour:
    Lecturer:  Wednesdays at 15:00 - 16:00 in room Y217 (Otakaari 1). Please confirm the appointment by contacting via email first.