Quantitative Finance

The aim of the course is to enable students to understand and apply contemporary quantitative methods in financial decision-making and corporate finance. The course integrates capital valuation models, market theories, risk analysis, cost of capital estimation, and advanced valuation models for financial instruments, including options, bonds, and risky debt. Special emphasis is placed on the application of mathematical and statistical tools in both continuous and discrete time, allowing students to approach complex financial problems analytically and to make optimal investment and financing decisions.

No

By completing the course, students acquire the ability to understand and apply key quantitative models in corporate finance, including CAPM, APT, and multifactor approaches, as well as methods for assessing the risk and return of individual securities and portfolios. They gain proficiency in valuation techniques for financial instruments, particularly options in discrete and continuous time through the binomial model and the Black–Scholes formula, as well as methods for valuing warrants and convertible bonds. Students develop an understanding of capital structure through the Modigliani–Miller theorems, along with theories addressing taxation, bankruptcy costs, the pecking order, signaling, and agency problems. They also become competent in applying WACC and APV methods, valuing corporate bonds and risky debt, and interpreting valuation ratios. Special attention is given to the mathematical and stochastic foundations that support analytical approaches to complex financial problems. Through these topics, students develop advanced analytical and numerical skills essential for making optimal investment and financing decisions.

Theoretical and applied models for valuing capital and financial instruments, including CAPM and advanced multifactor models. Measurement of risk and return for individual assets and portfolios, criteria for selecting risky projects, and models for discounting future cash flows. Valuation of securities and options in discrete and continuous time using the binomial model and the Black–Scholes method; put–call parity, valuation of warrants and convertible bonds. Capital structure; Modigliani–Miller theorems under perfect and imperfect market conditions, including taxation, bankruptcy costs, static trade-off theory, the pecking order theory, signaling theory, and agency theory. Ownership structure models, moral hazard, and the implications of optimal capital structure for firm value. Capital valuation methods based on the principle of additivity, WACC and APV approaches, and modifications of CAPM and APT models. Evaluation of interdependent investment projects. Valuation ratios and their application in company analysis; credit ratings; expected cash flows of corporate bonds and procedures for assessing risky debt.

The forms of teaching include lectures, exercises, independent seminar papers under supervision of professor, regular and online consultations, discussions of real-world cases, case studies, and interactive assignments carried out by students. Lectures and exercises are based on two-way communication aimed at presenting course content through practical examples, illustrations, and applied tasks.

Colloquium I (0-20 points); Colloquium II (0-20 points); Final exam (0-50 points); Attendance (2point); Class activities (seminar papers, discussions, case studies) (0-8 points)

Required Literature:
Urošević, B. (2009). Kvantitativne metode u korporativnim finansijama. Beograd: Ekonomski fakultet.

Recommended Literature:
Ross, S. A., Westerfield, R. W. & Jordan, B. D. (2022). Fundamentals of Corporate Finance. McGraw Hill.
Reilly, F. K., Brown, K. C., & Leeds, S. J. (2019). Investment Analysis and Portfolio Management. CENGAGE Learning.
Hull, J. C. (2021). Options, futures, and other derivatives. Pearson. Berk, J., & DeMarzo, P. (2023). Corporate finance. Pearson.
Brusov, P., Filatova, T., & Orekhova, N. (2021). Ratings: Critical analysis and new approaches of quantitative and qualitative methodology. Springer.

-