MSc in Financial Economics

The MSc in Financial Economics addresses the issues of analysis and management of risk and uncertainty in relation to all the major financial markets.

The MSc in Financial Economics is intended for people with undergraduate training in economics, finance or a quantitative discipline and finance, or financial engineering, who are looking for careers as professionals in the finance sector: stock broking, investment banking, financial analysis etc.

Students follow modules which cover the working of the markets for bonds, stocks currencies and derivatives (futures and forwards, options and swaps). Much of the material is extremely challenging analytically and sometimes technically, but attention is given at all times to the practical questions of how to interpret financial data for research purposes, how to identify and exploit trading opportunities and how to measure and manage risk.

In the autumn semester students follow four core modules in Micro- and Macroeconomics, Quantitative Methods and Principles of Finance.

Autumn Semester

Four compulsory modules

Macroeconomics

This module provides a solid understanding of macroeconomic analysis and its application to monetary and financial issues. Topics covered include: a review of the basics of income and interest rate determination; aggregate demand and supply, and open economy macroeconomics continuing with macroeconomic policy analysis; expectations in macroeconomics; business cycles; policy credibility and reputational aspects of policy.

Quantitative methods

This module provides theoretical and practical training in mathematical and econometric methods and their application to monetary and financial problems. Topics covered include: a review of basic mathematical and statistical methods: the linear regression model, static and dynamic models; specification tests; simultaneous equations and forecasting, with applications to problems in banking and finance. This module is taught so that material will be accessible to any reasonably numerate student. The emphasis is on teaching students how to conduct practical quantitative research projects for themselves.

Microeconomics: Economics of Uncertainty

This module provides a solid understanding of microeconomic analysis and its application to the analysis of uncertainty. Topics covered will include: theory of the consumer; choice under uncertainty; efficient allocation of risk; asset markets, adverse selection and moral hazard; the principal-agent model; signalling and screening.

Principles of Finance

This module is concerned with the workings of global financial markets. Topics include: introduction to portfolio analysis; mean variance and the capital asset pricing model; arbitrage pricing theory; the concept of diversification for risk management; risk reduction strategies by the use of derivatives; different notions of efficiency and their implications.

In the spring semester, students take three core modules and one elective module.

Spring Semester

Three compulsory modules

Corporate Finance

This module reviews advanced topics relating to the financing of corporate investments and corporate restructuring. The module examines the main issues relating to the financing of corporate investments when the assumptions underlying perfect capital markets are not upheld.

Empirical Finance

This module introduces you to the major times series econometric techniques that are widely used in the modelling of financial data and the testing of hypotheses concerned with the functioning of financial markets. It will provide you with the capacity for understanding and critically appraising applied work in financial econometrics. The module will enable you to undertake your own quantitative research projects.

Options and other derivatives

This module concentrates on the use of futures, forwards and swaps in hedging corporate risk and the problems in pricing more complex exotic derivatives. Topics will include: hedging with futures and forwards; pricing of futures and forwards; the cost-of-carry model; pricing of equality options; options on stock indexes; currencies; options on interest rate instruments; introduction to exotic options.

and one elective module:

Development Finance

This module provides training in the economic underpinnings of the financial issues which affect developing countries. Topics include: economic development strategy; project evaluation; domestic and external sources of finance; taxation and public sector control; central banking in developing countries; regulation and credit control; financial deepening; exchange rate and interest rate management; financial market development.

International Finance

This module is concerned with the financial operations of enterprises in the foreign exchange market. It provides an analytical background for the evaluation of the mainstream theories of exchange rate determination and links these to domestic and international macroeconomic policies. Topics include: the macroeconomics of the open economy; exchange rate fundamentals; theories of spot and forward exchange rate determination; currency options; FOREX.

International Trade

This module will examine all the main aspects of international trade. Starting with neo-classical trade theory, the module then moves on to look at the new trade theory, which emphasises economies of scale and imperfect competition, then analyses strategic trade policy. Finally, the module will focus on firms within the global economy, and the extent to which the actions of multinational enterprises can influence trade and growth.

Economic Forecasting

This module provides training in the methods of forecasting used in commercial enterprises. It also introduces the methods of macroeconomic forecasting. Topics include: univariate techniques; extrapolation, charting, Box-Jenkins; the use of survey information, leading indicators, and futures and forward markets; Black-box and VAR methods; econometric models, combining forecasts, the ragged edge problem and signal extraction; nonlinear modelling. This module is recommended only for those students who have an undergraduate background in economics.

Mathematical Finance

This module provides an advanced training in finance suitable for students with a background in mathematics and other quantitative disciplines. Topics will cover: introduction to state pricing arbitrage and equivalent martingale measures; Black-Scholes and arbitrage-free pricing; term structure models; optimal portfolio choice; optimal consumption and investment.

Following the taught component, students then complete a dissertation on a suitable economics topic.

Dissertation

Students will be required to submit a dissertation of not more than 20,000 words. This gives students a chance to explore a particular topic in depth and provides them with the opportunity to test the applicability of their new learning whilst under close supervision.

Assessment

The taught component of the programme is examined by both assessed work and university written examinations which are held at the end of each semester. The assessed work would be one of the following: essay, group work project, individual project or class test. Candidates who satisfy the examiners will proceed to the project stage of the programme and prepare for a dissertation.

Residential Programme

Dissertation proposals are presented and reviewed at a residential conference at Gregynog Hall in mid Wales. This secluded university conference centre is based in a Victorian country hall in maintained grounds is an ideal location for group working and study sessions.