Students
AFIN8001 – Finance Theory
2026 – Session 1, Online-scheduled-In person assessment, North Ryde
General Information
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| Unit convenor and teaching staff |
Unit convenor and teaching staff
Tom Smith
Contact via +61 2 9850 4761
E4A 529
By appointment
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|---|---|
| Credit points |
Credit points
10
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| Prerequisites |
Prerequisites
Admission to GradCertResMQBS or GradDipResMQBS
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| Corequisites |
Corequisites
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| Co-badged status |
Co-badged status
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| Unit description |
Unit description
This unit is designed to introduce students to the major models of asset pricing and to rational expectations models. By using various asset pricing models, the unit will examine the economic intuition behind each model as well as providing a mathematically rigorous derivation of the model. The important features of these models, and their testable implications, will also be discussed. |
Important Academic Dates
Information about important academic dates including deadlines for withdrawing from units are available at https://www.mq.edu.au/study/calendar-of-dates
Learning Outcomes
On successful completion of this unit, you will be able to:
- ULO1: Ilustrate and apply modern portfolio theory.
- ULO2: Examine discrete time asset pricing models, like CAPM, APT, State Preference models and the Lucas model, and explain the economic intuition behind each model.
- ULO3: Evaluate continuous time models like Black-Scholes Pricing model, Merton model, Breeden model and CIR model.
- ULO4: Understand advanced rational expectations models including Grossman model, Admati model, Kyle model and the extensions.
General Assessment Information
Late Submission Penalties
If you submit your assessment late, 5% of the total possible marks will be deducted for each day (including weekends), up to 7 days. Submissions more than 7 days late will receive a mark of 0.
Example 1 (out of 100):
If you score 85/100 but submit 20 hours late, you will lose 5 marks and receive 80/100.
Example 2 (out of 30):
If you score 27/30 but submit 20 hours late, you will lose 1.5 marks and receive 25.5/30.
Extensions
Automatic short extension: Some assessments are eligible for automatic short extension. You can only apply for an automatic short extension before the due date.
Special Consideration: If you need more time due to serious issues and for any assessments that are not eligible for Short Extension, you must apply for Special Consideration. Need help? Review the Special Consideration page for further details.
Assessment Tasks
| Name | Weighting | Hurdle | Due | Groupwork/Individual | Short Extension | AI Approach |
|---|---|---|---|---|---|---|
| Formal and Observed Learning: Test | 50% | No | 04/06/2026 | Individual | No | Observed |
| Skills development: Finance research proposal | 20% | No | 12/06/2026 | Individual | Yes | Open AI |
| Skills development: Finance theory in practice | 30% | No | Module 1 28/02 Module 2 28/03 Module 3 25/04 | Group | No | Open AI |
Formal and Observed Learning: Test
Assessment Type 1: Examination
Indicative Time on Task 2: 30 hours
Due: 04/06/2026
Weighting: 50%
Groupwork/Individual: Individual
Short extension 3: No
AI Approach: Observed
The purpose of this assessment is for you to demonstrate your understanding and knowledge of key topics from the unit.
You will participate in a formal test. Feedback on your performance will help you assess your progress through the unit content.
Deliverable(s): Test Individual assessment
On successful completion you will be able to:
- Ilustrate and apply modern portfolio theory.
- Examine discrete time asset pricing models, like CAPM, APT, State Preference models and the Lucas model, and explain the economic intuition behind each model.
- Evaluate continuous time models like Black-Scholes Pricing model, Merton model, Breeden model and CIR model.
- Understand advanced rational expectations models including Grossman model, Admati model, Kyle model and the extensions.
Skills development: Finance research proposal
Assessment Type 1: Problem-based task
Indicative Time on Task 2: 20 hours
Due: 12/06/2026
Weighting: 20%
Groupwork/Individual: Individual
Short extension 3: Yes
AI Approach: Open AI
The purpose of this assessment is for you to gain expertise in developing a research proposal.
You will apply frameworks and concepts discussed in the unit to develop a research proposal.
Skills in focus:
- Communication skills
- Critical thinking & problem solving
- Work readiness
- Discipline knowledge
Deliverable(s): Research proposal [max 500 words] Individual assessment
On successful completion you will be able to:
- Ilustrate and apply modern portfolio theory.
- Examine discrete time asset pricing models, like CAPM, APT, State Preference models and the Lucas model, and explain the economic intuition behind each model.
- Evaluate continuous time models like Black-Scholes Pricing model, Merton model, Breeden model and CIR model.
- Understand advanced rational expectations models including Grossman model, Admati model, Kyle model and the extensions.
Skills development: Finance theory in practice
Assessment Type 1: Problem-based task
Indicative Time on Task 2: 20 hours
Due: Module 1 28/02 Module 2 28/03 Module 3 25/04
Weighting: 30%
Groupwork/Individual: Group
Short extension 3: No
AI Approach: Open AI
The purpose of this assessment is for you to gain expertise in applications of finance theory.
You will apply frameworks and concepts discussed in the unit to a project requiring quantitative and qualitative analysis and present your findings to the class.
Skills in focus:
- Collaboration and communication
- Critical thinking & problem solving
- Discipline knowledge
Deliverable(s): Report [max 2,000 words] and presentation
Group assessment
On successful completion you will be able to:
- Ilustrate and apply modern portfolio theory.
- Examine discrete time asset pricing models, like CAPM, APT, State Preference models and the Lucas model, and explain the economic intuition behind each model.
- Evaluate continuous time models like Black-Scholes Pricing model, Merton model, Breeden model and CIR model.
- Understand advanced rational expectations models including Grossman model, Admati model, Kyle model and the extensions.
1 If you need help with your assignment, please contact:
- the academic teaching staff in your unit for guidance in understanding or completing this type of assessment
- Academic Success for academic skills support.
2 Indicative time-on-task is an estimate of the time required for completion of the assessment task and is subject to individual variation.
3 An automatic short extension is available for some assessments. Apply through the Service Connect Portal.
Delivery and Resources
Textbooks
There are no required texts for this course. The following books are useful references:
- Huang and Litzenberger, 1988 Foundations for Financial Economics, North-Holland (Elsevier Science Publishing, New York).
- Ingersoll, 1987 Theory of Financial Decision Making, Rowan and Littlefield (Totowa, NJ).
- Cochrane, 2005 Asset Pricing Revised Edition, Princeton University Press.
- O'Hara, 1995 Market Microstructure Theory, Blackwell Publishers, Cambridge Mass.
Unit Schedule
Module 1 Discrete Time Models
The Capital Asset Pricing Model (CAPM)
- Class Notes
- Huang and Litzenberger chapters 3 and 4
- Ingersoll chapters 3 and 4
The Arbitrage Pricing Theory (APT)
- Class Notes
- Ingersoll chapters 2 and 7
State Preference Models
- Class Notes
- Huang and Litzenberger chapters 5, 6, and 7
The Lucas Model
- Class Notes
- Ingersoll chapters 10 and 11
The Pricing Kernel Approach: Putting the Models together
- Class Notes
Module 2 Continuous Time Models
Continuous Time Mathematics
- Class Notes
- Ingersoll chapters 12 and 16
The Black--Scholes Option Pricing Model
- Class Notes
- Ingersoll chapter 14
The Merton Model
- Class Notes
- Ingersoll chapter 13
The Breeden Model
Class Notes
- Ingersoll chapter 15
The Cox--Ingersoll--Ross Model (CIR)
- Class Notes
- Ingersoll chapter 18
Module 3 Rational Expectations Models
The Grossman Model
- Class Notes
The Admati Model
- Class Notes
The Kyle Model
- Class Notes
Extensions of the Kyle Model and future directions
- Class Notes
Review of the Course
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Macquarie University policies and procedures are accessible from Policy Central (https://policies.mq.edu.au). Students should be aware of the following policies in particular with regard to Learning and Teaching:
- Academic Appeals Policy
- Academic Integrity Policy
- Academic Progression Policy
- Assessment Policy
- Fitness to Practice Procedure
- Assessment Procedure
- Complaints Resolution Procedure for Students and Members of the Public
- Special Consideration Policy
Students seeking more policy resources can visit Student Policies (https://students.mq.edu.au/support/study/policies). It is your one-stop-shop for the key policies you need to know about throughout your undergraduate student journey.
To find other policies relating to Teaching and Learning, visit Policy Central (https://policies.mq.edu.au) and use the search tool.
Student Code of Conduct
Macquarie University students have a responsibility to be familiar with the Student Code of Conduct: https://students.mq.edu.au/admin/other-resources/student-conduct
Results
Results published on platform other than eStudent, (eg. iLearn, Coursera etc.) or released directly by your Unit Convenor, are not confirmed as they are subject to final approval by the University. Once approved, final results will be sent to your student email address and will be made available in eStudent. For more information visit connect.mq.edu.au or if you are a Global MBA student contact globalmba.support@mq.edu.au
Academic Integrity
At Macquarie, we believe academic integrity – honesty, respect, trust, responsibility, fairness and courage – is at the core of learning, teaching and research. We recognise that meeting the expectations required to complete your assessments can be challenging. So, we offer you a range of resources and services to help you reach your potential, including free online writing and maths support, academic skills development and wellbeing consultations.
Student Support
Macquarie University provides a range of support services for students. For details, visit http://students.mq.edu.au/support/
Academic Success
Academic Success provides resources to develop your English language proficiency, academic writing, and communication skills.
- Workshops
- Chat with a WriteWISE peer writing leader
- Access StudyWISE
- Upload an assignment to Studiosity
- Complete the Academic Integrity Module
The Library provides online and face to face support to help you find and use relevant information resources.
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- IT Support
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Student Enquiries
Got a question? Ask us via the Service Connect Portal, or contact Service Connect.
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Unit information based on version 2026.04 of the Handbook