The module begins with an overview of capital markets and explores limits to the predictability of asset price changes, together with concepts of asset market efficiency. Portfolio theories of asset selection under uncertainty are reviewed, with emphasis on mean-variance analysis. Mean-variance analysis is then adapted to construct the Capital Asset Pricing Model (CAPM). Concepts of arbitrage are examined, and applied to introduce Arbitrage Pricing Theory (APT) in theory and practice.

The module goes on to explore distinctive features of markets for bonds and fixed interest securities. The two main classes of derivatives' markets – for futures and options contracts – are then examined with a view to applications involving the underlying assets in each case.