- Course Name: Investment Theory
- Planned to be offered: summer school 12
- Credits: 7½ ECTS
- Lecturer: Mich Tvede, phone no. 35323092, e-mail: Mich.Tvede@econ.ku.dk
- Time and Place: August 6th - August 17th in CSS 25.01.53 Lectures: 9-12 every working day Class: 13-15 every working day
For further information please visit the course website at Absalon. You can find the website by searching for the name of the course under "Courses" - in courses that offer classes besides the lectures have separate websites for lectures and classes, so you will have to sign up twice!
Academic aims: After the course the student should: 1. Understand the principles of investment theory based on real options. 2. Have a basic knowledge of random processes in continuous time, including Ito’s lemma. 3. Master the techniques for evaluating investment projects based on real options. 4. Be able to apply the theory to new investment projects with new real options. 5. Understand the steps in applying (investment) theory to real life projects.
Content: Investment projects typically consist of an initial investment and some uncertain dividend. An example could be to build a factory and sell the produce at an uncertain market price. In the course investment projects are seen as flexible in the sense that investor is able to decide when to invest rather than facing the choice between investing now or not investing. Moreover there may be other flexibilities in investment projects such as the possibilities to stop the project and to expand the project. Due to the flexibility the usual NPV rule (if the net present value is positive, then invest) turns out to be wrong. Indeed it is necessary to take the flexibility into account. In the course a theory, where the options or flexibilities in investment projects are priced, is developed. All necessary theory is introduced In the course.
Prerequisite Knowledge: basic knowledge of economics and probability theory. Syllabus: A.K. Dixit og R.S. Pindyck: Investment under Uncertainty, Princeton University press + notes + articles. Language: English (unless all students are Danish) Teaching form: Lectures and exercises Examination: 3-hours written exam with closed books