Module Code: |
H9ASA |
Long Title
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Applied Security Analysis
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Title
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Applied Security Analysis
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Module Level: |
LEVEL 9 |
EQF Level: |
7 |
EHEA Level: |
Second Cycle |
Module Coordinator: |
CORINA SHEERIN |
Module Author: |
JOE NAUGHTON |
Departments: |
School of Business
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Specifications of the qualifications and experience required of staff |
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Learning Outcomes |
On successful completion of this module the learner will be able to: |
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Learning Outcome Description |
LO1 |
Evaluate and appraise the principles of asset valuation, and apply these principles in a variety of situations. |
LO2 |
Critically evaluate equity valuation techniques and understand in what circumstances it is appropriate to apply each model and understand the assumptions and limitations inherent in each model. |
LO3 |
Select, categorise and appraise a variety of fixed income security valuation and relative value techniques and understand how these may be applied to a variety of bonds including bonds with embedded options. |
LO4 |
Demonstrate an advanced knowledge of the Mortgage and Asset Backed sector of the bond market with a comprehensive knowledge of the risk characteristics and pricing techniques for various types of Mortgage and Asset Backed Securities. |
LO5 |
Apply credit risk principles to the valuation of derivative securities |
Dependencies |
Module Recommendations
This is prior learning (or a practical skill) that is required before enrolment on this module. While the prior learning is expressed as named NCI module(s) it also allows for learning (in another module or modules) which is equivalent to the learning specified in the named module(s).
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No recommendations listed |
Co-requisite Modules
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No Co-requisite modules listed |
Entry requirements |
There are no additional entry requirements for this module. The programme entry requirements apply.
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Module Content & Assessment
Indicative Content |
Dividend Discount Models
Use CAPM and APT to select an appropriate discount rate
Review of the derivation of the Gordon Growth Model
Present Value of Growth Opportunities (PVGO)
Calculate the value of common stock using the dividend discount model, one stage, two stage, H-model, constant growth model
Determination of terminal value
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Free Cash Flow Models
Analysis of financial statements to infer FCFE and FCFF
Weighted Average Cost of Capital
Approaches for forecasting FCFE and FCFF
Use of constant growth, multistage and spreadsheet based free cash flow valuation models
Sensitivity of models to dividends, share repurchases, changes in leverage
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Market Multiples
Method of comparables vs. method of forecasted fundamentals
Definition and justification of marker multiples: P/E, P/B, P/S, earnings yield, and dividend yield
Use of the P/E-to-growth ratio (PEG)
Use of maker multiples in the terminal value of discounted cash-flow valuation
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Residual Income Models
Definition and interpretation of the terms residual income, economic value added, and market value added
Discussion of the nature of residual income valuation models and the circumstances in which they should be used
Accounting issues: violations of the clean surplus relationship
Single and multi-stage residual income models.
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Credit and Interest Rate Risk in Fixed Income Securities
Analysis of default, downgrade and credit spread risks
Credit analysis of corporate, sovereign, municipal and asset backed securities
Term Structure of Interest Rates
Yield curve dynamics
Theories of the shape of the yield curve
Interest rate risk: duration and convexity
Derivation of Macaulay Duration expression using calculus
Quantification of Convexity adjustment
Interest rate risk: key rate duration and present value of a basis point
Analysis of interest rate volatility.
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Bonds with Embedded Options
Overview of short rate interest rate models
Use of binomial trees to value bonds
Extension of the model to price callable and puttable bonds
Spreads: nominal spread, z-spread, and Option Adjusted Spread
Characteristics and risk analysis of convertible bonds
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Mortgage-Backed Securities
Analysis of the characteristics of amortising loans
Mortgage pass-through securities
Prepayment characteristics – PSA benchmark
Collateralised mortgage obligations and structures –Sequential Pay Tranches, Planned Amortisation Class CMOs, IO and PO strips
Commercial Mortgage-Backed Securities
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Asset Backed Securities
Analysis of the basic structural features of different types of asset backed securities: auto-loans, credit card receivables, home equity loans, student loans, and manufactured housing loans
Analysis of the credit enhancements on various asset backed securities
Analysis of the structure and characteristics of cash and synthetic Collateralised Debt Obligations
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Valuation of Mortgage Backed and Asset Backed Securities
Overview of Monte Carlo simulation for MBS valuation
Computation of spreads and effective duration
Analysis of convexity for mortgage-backed securities
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Modelling of Credit Risk and Valuation of Credit Derivatives
Constant hazard rate for default modelling
Credit Default Swap Valuation
Valuation of Basket CDS and CDO
Use and limitations of Gaussian Copula models
Overview of Credit Value Adjustment (CVA) for Derivatives
Methods of computing CVA
Risk dynamics of CVA
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Assessment Breakdown | % |
Coursework | 40.00% |
End of Module Assessment | 60.00% |
AssessmentsFull Time
Coursework |
Assessment Type: |
Continuous Assessment |
% of total: |
40 |
Assessment Date: |
n/a |
Outcome addressed: |
1,2,3,4 |
Non-Marked: |
No |
Assessment Description: Candidates are required to complete an equity valuation assignment. |
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End of Module Assessment |
Assessment Type: |
Terminal Exam |
% of total: |
60 |
Assessment Date: |
End-of-Semester |
Outcome addressed: |
1,5 |
Non-Marked: |
No |
Assessment Description: Final Examination, which will cover the entire course and will be a mix of theory and computational questions |
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Reassessment Requirement |
Repeat examination
Reassessment of this module will consist of a repeat examination. It is possible that there will also be a requirement to be reassessed in a coursework element.
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NCIRL reserves the right to alter the nature and timings of assessment
Module Workload
Module Target Workload Hours 0 Hours |
Workload: Full Time |
Workload Type |
Workload Description |
Hours |
Frequency |
Average Weekly Learner Workload |
Lecture |
Classroom and demonstrations |
24 |
Per Semester |
2.00 |
Directed Learning |
Directed e-learning |
24 |
Per Semester |
2.00 |
Independent Learning |
Independent learning |
77 |
Per Semester |
6.42 |
Total Weekly Contact Hours |
4.00 |
Workload: Part Time |
Workload Type |
Workload Description |
Hours |
Frequency |
Average Weekly Learner Workload |
Practical |
No Description |
2 |
Every Week |
2.00 |
Assignment |
No Description |
4 |
Every Week |
4.00 |
Independent Learning |
No Description |
4.5 |
Every Week |
4.50 |
Total Weekly Contact Hours |
2.00 |
Module Resources
Recommended Book Resources |
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CFA Level 2 Kaplan Schweser notes, books 3 and 5, Equity Investments and Fixed Income.
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Petitt, B, (2019), Fixed Income Analysis Workbook, CFA Institute Investment Series.
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Cuthbertson, K, (2009) ,Investments ,2nd Edition, Wiley.
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Pinto, J, (2015), Equity Asset Valuation, CFA Institute Investment Series.
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Hull, J, (2021) Options, Futures, and Other Derivatives, Global Edition Pearson.
| This module does not have any article/paper resources |
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Other Resources |
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[Website], http://www.wilmott.com.
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[Website], http://www.mathfinance.de.
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[Website], www.garp.com.
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[Website], www.bloomberg.com.
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[Website], www.reuters.com.
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