Risk Investment Decision

Crédit : 4 ECTS
Langue du cours : anglais

Volume horaire

  • CM : 24 h

Compétences à acquérir

Students will be provided with the key insights of theoretical models to understand why decisions such as full versus partial insurance are taken. The overview of the basic models of investors’ behaviour shall also provide students with a fundamental knowledge of investment theory.
At the end of the course students should be able to compare investments in different assets by evaluating the expected return to maturity and to calculate the return and variance of a portfolio. This knowledge should help the reading of the financial press and should make students aware that the ability of a successful financial advisor stems from understanding the underlying theoretical concepts of investment decisions.

Description du contenu de l'enseignement

The aim of the course is to learn the key tools and concepts to analyse how decision makers choose from a set of feasible alternatives when the consequences or outcomes are uncertain. These analytical tools are then applied to real-life economic and financial decisions, like the purchase of insurance and the trading of financial assets in financial markets, to gain some insights on how those markets work.

The course focuses on insurance and financial investment decisions. The decision of full insurance is compared to the decision of partial insurance and the conditions for the optimality of the two are considered, under both symmetric and asymmetric information.
After reviewing the types of financial markets and the types of assets traded, the course considers the measurement of return and risk of single assets and of a portfolio.
The Markowitz model is presented to illustrate how single investors choose their optimal portfolio.

Planning course :
  • Decision making under conditions of risk and uncertainty : basic features
  • The expected utility hypothesis : the von Neumann Morgenstern axioms
  • The Utility of Wealth Function, risk aversion, risk loving. Expected utility and indifference curves over state-contingent commodities
  • Measuring Risk Aversion : the risk premium and the Arrow-Pratt measures to assess how the investor’s preferences change with a change in wealth
  • Application : the purchase of insurance. Optimal choice of insurance : full and partial insurance
  • Portfolio Analysis. The definition of the investor’s opportunity set under risk : Mean-Variance analysis
     
Portfolio selection : the use of expected utility analysis to identify the combination of the optimum risky portfolio and riskless asset.

Mode de contrôle des connaissances

  • Contrôle continu : 50%
  • Contrôle terminal : 50%

Pré-requis recommandés

Licence L3 Gestion de patrimoine.

Pré-requis obligatoires

Consumer Theory (Licence 3), Fundamentals of Microeconomics, Basics Maths and Stats.

Bibliographie, lectures recommandées

  • Eeckhoudt, L., Gollier C., Schlesinger, H. (2005), Economic and Financial Decisions under Risk, Princeton University Press. Chapters 1, 2, 3, 6, 12.
  • Elton, E., Gruber, M., Brown, S., and Goetzmann, W. (2003), Modern Portfolio Theory and Investment Analysis, John Wiley & Son, 6th edition.
  • Timothy Van Zandt (2006) Introduction to the Economics of Uncertainty and Information. Chapters 1, 2, 5, 6, 11.
  • Copeland, T., Weston, F. (1946) Financial Theory and Corporate Policy, Addison-Wesley, Chapter 6.

Enseignant responsable

MARIA LUISA RATTO



Année universitaire 2016 - 2017 - Fiche modifiée le : 13-02-2017 (15H50) - Sous réserve de modification.