Course syllabus
Course outline
The course begins with the valuation principles shared across finance and ends with the institutional questions raised by digital money. This page states the scope of each day, the calculation students carry into the practical work, and the readings that support the sequence.
Course description
Finance is built from promises dated in time and exposed to uncertainty. The course first develops a disciplined way to value those promises: cash-flow timelines, discount factors, interest-rate conventions, bond prices, stock values, diversification and the market price of risk. These ideas provide the analytical base for the rest of the course.
The second half studies contracts and institutions that transform or transmit financial risk. Students examine forwards, futures and options; use high-frequency market prices to separate central-bank decisions from surprises; and compare Bitcoin, stablecoins, central- bank digital currency and bank deposits as different claims moving across different settlement systems. Computation is used where it clarifies the economics: to reproduce a price, expose sensitivity, or make an empirical claim auditable.
Course aims
The central aim is to connect financial intuition, analytical reasoning and reproducible calculation. Students should leave able to translate a financial question into cash flows, states or market observations; choose an appropriate model; carry out the calculation; and explain both the result and its limitations.
Learning outcomes
On successful completion, you will be able to:
- construct cash-flow timelines and discount values consistently under simple, periodic and continuous compounding;
- interpret APR, effective annual rates, discount factors, spot rates and forward rates without mixing quotation conventions;
- value bonds and equities, identify the assumptions doing most of the work, and measure sensitivity to rates, growth and terminal value;
- calculate portfolio return and risk, estimate beta, apply the CAPM, and distinguish diversifiable from systematic risk;
- derive and interpret basic no-arbitrage relations for forwards, futures and options, and compare hedged with unhedged outcomes;
- construct and critique a high-frequency monetary-policy event study using market expectations, event windows and central-bank communication;
- evaluate digital monetary arrangements by economic function, balance-sheet claim, redemption, governance and final settlement;
- use a transparent Python notebook to reproduce a financial calculation and communicate the economic conclusion rather than merely report code output.
Teaching and assessment
Teaching method. Each day is organised as one connected argument rather than a catalogue of techniques. A financial problem motivates the model; the model is built analytically; evidence or a case tests the result; and computation extends the calculation where it adds value. Questions and short exercises are used throughout.
Quiz and practical work. A short daily quiz checks concepts, calculations and interpretation, followed by a guided solution. Python practicals and homework reproduce or extend the standard calculations. Python is therefore present across the course, but it is not required in every lecture segment.
Course schedule
| Day | Topic | Analytical and empirical focus |
|---|---|---|
| Week One · Valuation and capital markets | ||
| Day 1 Mon 17 Aug | The time value of money and interest rates | Cash-flow timelines; present and future value; compounding conventions; annuities and perpetuities; NPV; nominal and real rates; discount factors, spot rates and forward rates. |
| Day 2 Tue 18 Aug | Valuing bonds | Coupon and principal cash flows; clean price intuition; yield to maturity versus spot-rate valuation; the price–yield curve; duration, convexity and interest-rate risk. |
| Day 3 Wed 19 Aug | Valuing stocks | Dividends and total payout; free cash flow; enterprise and equity value; growth opportunities; terminal value; valuation multiples; scenario and sensitivity analysis. |
| Day 4 Thu 20 Aug | Capital markets and the pricing of risk | Returns and volatility; covariance and diversification; portfolio risk; beta; the security market line; CAPM cost of equity; alpha and the model's empirical limits. |
| Week Two · Risk transfer, information and digital finance | ||
| Day 5 Mon 24 Aug | Forwards, futures and risk management | Contract mechanics and payoff; no-arbitrage forward pricing; cost of carry; futures margin and daily settlement; hedging, basis risk and hedge effectiveness. |
| Day 6 Tue 25 Aug | Understanding options | Calls and puts; rights and obligations; payoff versus profit; moneyness; intrinsic and time value; price bounds; put–call parity; protective puts, covered calls and simple combinations. |
| Day 7 Wed 26 Aug | Central-bank news and high-frequency markets | Market-implied policy expectations; futures price quotation; expected decisions and surprises; event windows; high-frequency identification; target and path news; hawkish and dovish language. |
| Day 8 Thu 27 Aug | Bitcoin, digital money and payment systems | Functions and forms of money; Bitcoin's ledger and monetary design; custody and market access; stablecoin reserves and redemption; CBDC; payment initiation, clearing, settlement and finality. |
Session map
Week One · Valuation and capital markets
The Time Value of Money and Interest Rates
A dated cash flow is the basic object of financial valuation. The session moves from a cash-flow timeline to discount factors, present value and net present value, then compares simple, periodic and continuous compounding. APR and effective annual rates show why a rate is incomplete without its convention. Annuities, perpetuities, real rates and forward rates extend the same logic rather than introduce unrelated formulas.
Financial question. What exchange across dates leaves an investor indifferent, and how does that answer change when rates, inflation or timing change?
Computation Value irregular cash flows, translate rate quotations, compare financing choices, construct discount factors and recover forward rates from a teaching OIS curve.
Valuing Bonds
A bond packages dated coupons and principal into one traded price. Students value each cash flow from the spot curve, contrast that calculation with yield to maturity, and explain why equal-maturity bonds need not have equal rate sensitivity. Duration provides the first- order exposure; convexity explains why the price–yield relation bends. UK gilts and the 2022 liability-driven investment episode connect the measures to market stress.
Financial question. Why can the value of a fixed contractual promise change sharply even when the issuer pays exactly as promised?
Computation Price two gilts from their cash flows, solve for yield, calculate duration and convexity, and compare exact repricing with a local approximation under curve shocks.
Valuing Stocks
Equity is a residual claim, so its cash flows are uncertain and potentially long-lived. The session starts with dividends and total payout, then distinguishes enterprise value from equity value through free cash flow. Constant-growth valuation makes the interaction between the discount rate and growth explicit; terminal value and multiples reveal where apparently precise valuations become assumption-sensitive.
Financial question. Which future cash flows belong to shareholders, and how much of today's value rests on growth that has not yet occurred?
Computation Build base, upside and downside valuations, trace a discount-rate/growth sensitivity surface, compare payout measures and interpret peer multiples.
Capital Markets and the Pricing of Risk
Risk depends on how an asset moves with the rest of a portfolio, not only on its own volatility. Students build portfolio variance from covariance, see diversification at work, and interpret beta as exposure to market movements. The CAPM links beta to expected return and the cost of equity; industry returns and factor data then show why the model is a useful benchmark rather than a complete empirical description of returns.
Financial question. Which uncertainty can an investor diversify away, and which exposure should affect the return required from a project or share?
Computation Convert prices to returns, construct covariance and portfolio risk, estimate beta, compute a CAPM cost of equity and inspect sensitivity to the sample and benchmark.
Week Two · Risk transfer, information and digital finance
Forwards, Futures and Risk Management
Forward and futures contracts transfer price risk without requiring the underlying asset to change hands today. The session derives the forward price from a cash-and-carry argument, then separates price from value and distinguishes a bilateral forward from an exchange- traded futures contract. Daily marking to market creates liquidity consequences even when the final hedge works economically.
Financial question. How can a firm reduce uncertainty in a future purchase or sale, and what new risks remain after it hedges?
Computation Calculate forward prices and payoffs, compare hedged and unhedged states, follow a futures margin ledger and measure residual basis risk.
Understanding Options
An option separates a right from an obligation and therefore creates an asymmetric payoff. Students distinguish payoff from profit and intrinsic value from time value before deriving basic price bounds and put–call parity. Protective puts, covered calls and simple combinations show how options reshape exposure. The core session is about understanding contracts and risk management; Black–Scholes, Greeks and implied volatility are not required.
Financial question. When is paying for flexibility economically sensible, and which risk is transferred to the option writer?
Computation Generate call and put payoff tables, distinguish buyer and writer positions, test put–call parity and compare the state-by-state outcomes of simple strategies.
Central-Bank News and High-Frequency Markets
A policy decision is news only relative to what markets expected immediately before it. Students translate interest-rate futures prices into implied rates, define a monetary-policy surprise, and use narrow event windows to reduce contamination from other news. Changes at different maturities separate current-target news from expected policy-path news. A simple transparent text measure introduces central-bank communication without treating language as a mechanical substitute for economic judgement.
Financial question. Did markets react to a policy action, to information about the future path, or to words that changed the interpretation of both?
Computation Recover implied rates, calculate event-window changes using the US Monetary Policy Event-Study Database, compare the yield-curve response and score selected FOMC statements.
Bitcoin, Digital Money and Payment Systems
The final session begins with monetary function and balance-sheet claims. Bitcoin is studied as a protocol, scarce native asset and volatile market, including mining, custody, keys and exchange-traded access. Stablecoins add an issuer, reserves and a promise of redemption; CBDC changes the public's access to central-bank liabilities. The payment-system sequence then distinguishes initiation, clearing, settlement and finality, using UK retail systems and CHAPS to show why high value and high volume are not the same problem.
Financial question. What is being transferred, who promises redemption at par, and on whose balance sheet does settlement become final?
Computation Measure Bitcoin returns and drawdowns, analyse the March 2023 USDC de-peg, stress a stylised stablecoin reserve, and compare gross with net settlement using UK payment data.
Scope and depth
The course is analytically serious but deliberately selective. Students calculate present values, bond risk, equity sensitivities, portfolio risk, beta, derivative payoffs and event- study measures. They interpret the assumptions behind those calculations. Topics that require a separate advanced course are identified but not compressed into a few slides.
| Covered and applied | Introduced for context | Outside the core course |
|---|---|---|
| Discounting, spot and forward rates; bond and stock valuation; duration and convexity; portfolio risk, beta and CAPM | Yield-curve construction, factor models, credit and liquidity premia | Advanced fixed-income models, stochastic interest rates and credit derivatives |
| Forward and futures pricing; margin; basis risk; option payoffs, bounds, parity and simple strategies | Why volatility and dynamic hedging matter for option value | Binomial valuation, Black–Scholes derivation, Greeks, implied volatility surfaces and exotic options |
| Policy surprises, narrow event windows, yield-curve responses and transparent text scores | Target/path decompositions and identification assumptions | Full structural monetary-policy models and production natural-language processing systems |
| Bitcoin, stablecoins, CBDC, commercial-bank money, clearing, settlement and finality | Tokenisation, custody architecture and regulatory design | Protocol engineering, smart-contract programming and jurisdiction-by-jurisdiction legal advice |
Core bibliography and reading list
Chapter numbers below follow the editions used for the course. Where editions differ, the topic title is the reliable guide.
Core textbooks Days 1–6
- Berk, Jonathan, and Peter DeMarzo. Corporate Finance. Chapters 4–6 on the time value of money, interest rates and bonds; Chapter 10 on capital markets and the pricing of risk; Chapter 20 on financial options.
- Brealey, Richard A., Stewart C. Myers, Franklin Allen, and Alex Edmans. Principles of Corporate Finance. Chapters 2–4 on present value, bonds and stocks; Chapter 8 on the CAPM; Chapter 21 on understanding options.
- Hull, John C. Options, Futures, and Other Derivatives. Selected introductory chapters on forward and futures markets, hedging strategies, option-market mechanics and option payoffs. Chapter numbering varies by edition.
- Mishkin, Frederic S. The Economics of Money, Banking, and Financial Markets. Chapters 3–5 on money, the meaning of interest rates and the behaviour of interest rates.
Market data and monetary-policy news Days 1, 2, 4 and 7
- Bank of England. Yield Curve Terminology and Concepts. Official guide to UK spot and forward curves.
- Kuttner, Kenneth N. “Monetary Policy Surprises and Interest Rates: Evidence from the Fed Funds Futures Market.” Journal of Monetary Economics 47, no. 3 (2001): 523–544.
- Gürkaynak, Refet S., Brian Sack, and Eric Swanson. “Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements.” International Journal of Central Banking 1, no. 1 (2005): 55–93.
- Federal Reserve Bank of San Francisco. U.S. Monetary Policy Event-Study Database. Data and documentation.
- Kenneth R. French. Data Library. Market, factor and industry portfolio returns.
Digital money and payments Day 8
- Prasad, Eswar S. The Future of Money: How the Digital Revolution Is Transforming Currencies and Finance. Harvard University Press, 2021. Selected chapters on Bitcoin, cryptocurrencies, stablecoins, central-bank digital currencies and payments.
- Nakamoto, Satoshi. Bitcoin: A Peer-to-Peer Electronic Cash System. 2008. Original paper.
- Bank for International Settlements. “Anchoring Trust in Money: Innovation beyond Stablecoins.” Annual Economic Report 2026, Chapter III. BIS chapter.
- Bank of England. Payment and Settlement Statistics. CHAPS, RTGS and UK payment-system data.
- Coin Metrics. Community API. Documentation for reproducible digital-asset data.
