Code: C39RF

Course Name: Applied Financial

Modelling in Python

Course Handbook
2022/23
1. Introduction

Applied Financial Modelling in Python is an Option course on the MA Finance and MA Business &
Finance programmes. The aim of the course is to provide a comprehensive understanding of
mainstream quantitative methods used in the research area of finance and financial markets. The
course will equip students with contemporary methodologies used in the analysis of times series, cross-
sectional, panel data, volatility models, machine learning and sentiment analysis. The course is focused
both on the theory and on practical applications in the computer lab using Python, the popular open-
source econometric software package. Students will learn to build various models using real financial
data and evaluate them using different criteria to determine if the data support the theory/evidence.
By applying modern econometric methods, students will have a chance to prepare themselves for their
dissertation and for a career in the finance industry.

2. Course Learning Objectives

On completion of this course, you will be able to:

Have a comprehensive understanding of basic statistics and econometrics.

Have a comprehensive understanding of modelling the linear relationship between financial variables
and testing the robustness of such models.
Have a comprehensive understanding of modelling the volatility of financial returns.
Have an understanding of financial relationships that are not linear in nature.
Have a comprehensive understanding of modelling how sentiment affects financial markets.
Have a good understanding of using Python for modelling financial scenarios.

Scholarship enquiry and research

 The course will develop scholarship through students analysing technical problems, searching
relevant literature, presenting, and defending their solutions and seminar debates
 Students will develop a conceptual framework informed by theory to understand what constitutes
effective financial modelling in practice.
 Students will develop an awareness of the range of econometric models used in financial empirical
investigations.

Personal abilities: Industrial commercial and professional practice

 The contemporary foci of this course will provide students with solid financial modelling and
programming capabilities that will be of value to them in securing employment within the finance
industry.
 Understand complex lines of reasoning, expressed verbally and algebraically.
 Compare differing arguments and differing explanations for facts and findings.
 Assess empirical evidence.
 Plan and organize through self-management and time-management.

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  Improve skills in communication and the ability to rigorously present financial/economic arguments
to a critically educated audience.

Autonomy, accountability and working with others

 Students will pursue their own learning by being challenged to identify their own individual
solutions to coursework and other set problems.
 Students will develop modelling and programming skills in working individually and in groups to
solve complex problems associated with finance.

Communication, numeracy, IT

 Through individual and group working in seminars, students will have the opportunity to develop
presentation skills.
 This course will facilitate the development of advanced numerical, computational, and
programming skills which are desirable both in academia and industry jobs.

3. The Global Teaching Team

The School of Social Sciences operates across three of HW’s 5 campus locations giving you the unique
opportunity via Canvas to access any online sessions offered by faculty in each location. This course is
offered by staff located in Edinburgh and Dubai :

Campus Role Name HW Email** Office Hours (local

time) during term
time

Tuesday 3pm-5pm
Global Course Leader* Dr Andrea Eross A.Eross@hw.ac.uk

Edinburgh Lecturer Dr Andrea Eross A.Eross@hw.ac.uk

Monday and Tuesday

Tutor Mr Ammar Ahmed A.Ahmed@hw.ac.uk
2pm-3pm

Monday and
Course Leader* Dr Ullas Rao U.Rao@hw.ac.uk Wednesday 3pm-
4pm
Dubai
Lecturer Dr Ullas Rao U.Rao@hw.ac.uk

Tutor Dr Ullas Rao U.Rao@hw.ac.uk

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 Campus Role Name HW Email** Office Hours (local
time) during term
time

Course Leader* NaN NaN NaN

Malaysia Lecturer/s NaN NaN NaN

Tutor/s NaN NaN NaN

4. Course Structure
This course is divided into 11 Learning Units. Each Unit is accompanied by one or more online lectures and
supporting tutorials and will address a specific subject area. In each Week Unit on Canvas you will find a
range of online learning materials and instructions to guide your progress through a number of tasks and
activities to support your learning and to prepare you for lectures and /or tutorials. In total this course
comprises 11 timetabled on-campus lectures each of two-hours duration. These lectures are on-campus
sessions delivered at the same time each week over the semester. In addition, you will have the
opportunity to attend an on-campus tutorial in weeks 1 to 5 and 7 to 12 to explore concepts in more
detail.

Consolidation Week: Week 6 is reserved as a reading week free of any timetabled sessions across all HWU
courses. You should use this time to catch up with online learning materials and wider reading. This will
also give you time to work on coursework assessment.

5. Teaching Schedule
For Edinburgh: Lectures. There will be 11 timetabled on-campus lectures of two hours each on Mondays
commencing on the 12th of September between 9.00-11.00am UK time.

For Dubai: Lectures. There will be 11 timetabled on-campus lectures of one hour each on Mondays
commencing on the 12th September between 9.00-11.00am Dubai time.

All lectures will be recorded and made available within the relevant week folder on Canvas after each
event.

For Edinburgh: Tutorials: There will be 10 timetabled on-campus tutorials of one hour each on Fridays
commencing on the 16th of February between 2.00-3.00pm UK time delivered as per the detailed schedule
in Section 4.

For Dubai: Tutorials: There will be 10 timetabled on-campus tutorials of one hour each on Mondays
commencing on the 12th September between 11.00am-12.00pm Dubai time delivered as per the detailed
schedule in Section 4.

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All Tutorials will be interactive campus-based sessions lasting one hour. You will work as a class or in groups
to explore the theories and concepts introduced in that week’s lecture or in materials you will be directed
to on Canvas.

6. Course Assessment
Assessment on this course is designed to test your achievement of the learning outcomes listed above. You
will be assessed using the following assessment components:

 Coursework 1 to be submitted in week 7, Friday the 28th October at 5.00pm UK and Dubai time
for both campuses. The coursework accounts for 50% of the total 100 marks.
 Coursework 2 to be submitted in week 13, Friday the 9th of December at 5.00pm UK and Dubai
time for both campuses. The coursework accounts for 50% of the total 100 marks.
 The two courseworks will be in the form of two separate case studies in which you will have to
download financial data, analyse it and present result using the Python software. Please note
that plagiarism is an offence. All coursework where plagiarism is detected will be referred to the
disciplinary committee for consideration. Please refer to the information posted on Canvas
regarding the rules on this matter.

Marking criteria for each assessment are available in the Assessment on this course Canvas Module. These
criteria are used to evaluate your work against the learning outcomes for this course and therefore you
should ensure that you understand the criteria and focus on what matters. Support to complete course
assessment is provided during tutorials and in the assessment documentation uploaded to Canvas. A
Discussion Board will be set up for each assessment to allow open discussion and to answer any questions
you might have about course assessment.

Submission of Coursework. Electronic files of your individual coursework MUST be submitted to the
Assessment Module on CANVAS. No hard copy of your work is required.

Will I get feedback on my coursework? Yes, you will receive general class feedback and individual feedback
to help you improve your performance on the course and help you prepare for the second coursework
submission. Class feedback, highlighting general strengths and weaknesses, will be provided to you on
Canvas, while individual feedback will be available up to 3 weeks after the assessment is due, as per HWU
policy. Feedback will be released to you via Canvas. You will not receive marks on the second piece of
Coursework until after the Board of Examiners have approved the course results.

Late Submissions of coursework. In line with University Policy, any work submitted after the set date and
time will automatically have a penalty applied. The penalty is a reduction by 30% of the mark awarded.

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Submission will be accepted up to five working days after the submission deadline - your work will be
marked, the late penalty applied, and you will receive feedback. Coursework submitted after five working
days will be awarded NO grade and you will not be entitled to feedback.

Extensions. No extensions for coursework are permitted unless an extension is given to the whole class (in
exceptional circumstances). The course leader cannot grant individual extensions. If you foresee having
issues submitting by the deadline, please contact your Personal Tutor and apply for Mitigating
Circumstances (MC) via the student portal.

Further detail on course assessment is available in the Assessment content area of the Canvas course.

7. Academic Misconduct
At Heriot-Watt we expect all students to apply the highest standards of academic integrity and honesty in
all aspects of learning and assessment. You must read and adhere to the University’s policy on Academic
Integrity and complete the Academic Integrity Module included in the Canvas course.

To deal with academic misconduct, including activities associated with contract cheating, plagiarism and
collusion, the University has Student Discipline Policy and Procedures that apply to all students of the
University.
The University understands that assessment can be stressful for students, for a wide range of reasons.
Therefore, if you are feeling anxious about your assessment(s), please contact the Student Advice Hub, the
Student Well-Being Services, your Personal Tutor or your course leader for guidance and/or advice. If
there are circumstances out with your control preventing you from effectively engaging with and
completing assessed work, you should seek advice and consider applying for Mitigating Circumstances.
It’s vital that you seek support rather than resorting to cheating. If you are found guilty of academic
misconduct this will be reflected in your final degree transcript and you will be expected to resubmit your
work or resit the course; this may delay progression to the next stage of study and / or delay the award of
your degree.

To gain access to the Assessment on this course you need to complete the
Academic Integrity Module contained within the Canvas Course.

8. Reading, Preparation and Additional Resources

Within each Unit in the Canvas Course you will find what will be covered in each lecture and tutorial and
how you can best prepare for these sessions. Please read through these carefully in advance. There are
clear instructions for the activities, exercises and tasks you need to complete before each tutorial.

Any required pre-work involves selected aspects of the online course and readings; if pre-work is indicated
for a lecture or tutorial this should be considered a minimum required level of preparation. If you have time
and would like to do more work beforehand or after a seminar or tutorial, you should work through the
additional activities and readings indicated in the Module.

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The digital library is available giving access to a full range of resources, including e-books, databases and
journals. Resource lists, subject guides, skills development and online tutorials will also be available to
support your study. If you have any questions, our specialist Librarian (Marion Kennedy, EBS and
Psychology, +44 131 451 3583, m.l.kennedy@hw.ac.uk ) will be ready to help with one-to-one advice.

Core Textbook. The core textbook for this course is available via the HWU library as an e-book:

 Python Guide to Accompany Introductory Econometrics for Finance, by Chris Brooks, 4ed, 2019
– available on Canvas and the Library.
 Introductory Econometrics for Finance, by Chris Brooks, 4ed, 2019 – available in eBook and
printed format from the Library.

Additional resources will be made available during the semester.

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 9. Detailed Course Schedule
All times are local. Lectures are two hours in duration, Tutorials are 1 hour in duration.
Sessions are delivered on-campus only.

Dubai Required Pre-work

Please note that you are not expected to memorise or replicate formulas.
Lectures Please skip sections where lengthy derivations are provided/discussed
Week and Edinburgh in the theoretical textbook called “Introductory Econometrics for Finance”.
Tutorials
The “Python guide to accompany Introdcutory Econometrics for
Finance” textbook is purely practical book.

1. 1. Introduction to 9am – 11am 9am – 11am

Read Textbook: Python Guide to Accompany Introductory
Python and the 12th 12th
Lecture
Jupyter Notebook. September September Econometrics for Finance, by Chris Brooks, 4ed – Chapter 1: Getting
Simple Mathematical
operations. Basic Started.
financial data
management. Data Read Textbook: Introductory Econometrics for Finance, by Chris Brooks, 4ed,
description. Basic 2pm-3pm 11am-12pm
Summary statistics. 16th 12th
Tutorial 2019 – Section 2.3: Descriptive statistics (2.3.1, 2.3.2, 2.3.3, 2.3.4 and 2.3.5)
Plotting financial September September
data.

2. Review of basic
Econometric and
Statistical Read Textbook: Python Guide to Accompany Introductory
9am - 11am
inference. 9am – 11am
Econometrics for Finance, by Chris Brooks, 4ed – Chapter 2: Data management
Download 19th 19th
Lecture
financial data September September in Python.
from the web,
perform 2pm-3pm Read Textbook: Introductory Econometrics for Finance, by Chris Brooks, 4ed,
Tutorial 11am -12pm
summary 23rd
statistics and September 2019 – Section 2.3: Descriptive statistics (2.3.1, 2.3.2, 2.3.3, 2.3.4 and 2.3.5)
19th
plot data.
September
Generate new
data.

3. 3. Modelling the Lecture 9am – 11am 9am - 11am Read Textbook: Python Guide to Accompany Introductory
linear relationship 26th
between two September Econometrics for Finance, by Chris Brooks, 4ed –
26th
variables; Time Series September
Regression. Testing Chapters 3, and 5: Simple Linear Regression; Estimation and hypothesis
the Capital Asset
testing -the CAPM.
Pricing Model
Read Textbook: Introductory Econometrics for Finance, by Chris Brooks, 4ed,

2019 – Chapter 3 A Brief Overview of the Classical Linear

Regression Model, but only Sections 3.1, 3.2 and 3.3 (till page 156), then

Section 3.5. It is fine if you read these sections over 2 weeks. This will cement

your understanding on Regression models and it will be the basis for all

regressions models.

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 Dubai Required Pre-work
Please note that you are not expected to memorise or replicate formulas.
Lectures Please skip sections where lengthy derivations are provided/discussed
Week and Edinburgh in the theoretical textbook called “Introductory Econometrics for Finance”.
Tutorials
The “Python guide to accompany Introdcutory Econometrics for
Finance” textbook is purely practical book.

Tutorial 2pm-3pm 11am -12pm

30th 26th
September September

9am - 11am Read Textbook: Python Guide to Accompany Introductory

3rd October
Econometrics for Finance, by Chris Brooks, 4ed –

5. 4. Principal Chapters 9: Calculating principal components

Lecture 9am – 11am
Component Analysis 3rd October Read Textbook: Introductory Econometrics for Finance, by Chris Brooks, 4ed,
– which stocks
explain the variability
2019, Appendix 4.2 A Brief Introduction to Factor Models
of a Stock Market and Principal Components Analysis.
Index

Tutorial 2pm-3pm 7th 11am -12pm

October 3rd October

9am - 11am Read Textbook: Python Guide to Accompany Introductory

10th October
Econometrics for Finance, by Chris Brooks, 4ed –

Chapters 7 (Section 7.1 only) and 10: Multiple regression using the APT-style
9am – 11am
Lecture
10th October model and Diagnostic Testing
7. 5. Modelling the
linear relationship
Read Textbook: Introductory Econometrics for Finance, by Chris Brooks, 4ed,
between multiple
variables;
2019 – Chapter 3 A Brief Overview of the Classical Linear
Regression Model, but only Sections 3.8, 3.8.1 and 3.8.4.

Tutorial 2pm-3pm 11am -12pm

14th October 10th October

17-21
9. Reading week Read through materials for weeks 1 to 5. Write up Coursework nr. 1
October

9am - 11am Read Textbook: Introductory Econometrics for Finance, by Chris Brooks, 4ed,
9am – 11am
Lecture 24th October
24th October
10. Estimating the 2019 – Section 14.2.2 only.
excess return of an
investment portfolio
– the Fama and 11am -12pm
French 3-factor Tutorial
model 2pm-3pm
28st October 24th October

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 Dubai Required Pre-work
Please note that you are not expected to memorise or replicate formulas.
Lectures Please skip sections where lengthy derivations are provided/discussed
Week and Edinburgh in the theoretical textbook called “Introductory Econometrics for Finance”.
Tutorials
The “Python guide to accompany Introdcutory Econometrics for
Finance” textbook is purely practical book.

9am - 11am Read Textbook: Python Guide to Accompany Introductory

31st October
Econometrics for Finance, by Chris Brooks, 4ed – Chapters 16 and 17:

VAR estimation. Testing for unit roots.

Lecture 9am – 11am
31st October Read Textbook: Introductory Econometrics for Finance, by Chris Brooks, 4ed,

12. Modelling Long 2019 – Sections 7.10, 7.10.1, 7.10.3, and 7.10.4
Run Relationships

Tutorial 2pm-3pm 11am -12pm

4th 31st October
November

9am - 11am Read Textbook: Python Guide to Accompany Introductory Econometrics for
7th
November Finance, by Chris Brooks, 4ed – Chapter 21: Panel data models.

9am – 11am Read slides from Princeton University:

Lecture 7th
November https://www.princeton.edu/~otorres/Panel101.pdf - this material uses STATA

14. Panel data

to show the regressions, however it is a very thorough material to discuss and
models
interpret panel data regressions.

Tutorial 2pm-3pm 11am-12pm

11th 7th
November November

10. Volatility Lecture 9am – 11am 9am - 11am Read Textbook: Python Guide to Accompany Introductory Econometrics for
modelling: 14th 14th
GARCH models November November Finance, by Chris Brooks, 4ed – Chapter 19: Volatility modelling .

Read Textbook: Introductory Econometrics for Finance, by Chris Brooks, 4ed,

2019 – Sections from 9.1 until 9.1.3, 9.7 includig 9.7.1, 9.7.3, 9.8 until page 514,

9.9 until top of page 516.

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 Dubai Required Pre-work
Please note that you are not expected to memorise or replicate formulas.
Lectures Please skip sections where lengthy derivations are provided/discussed
Week and Edinburgh in the theoretical textbook called “Introductory Econometrics for Finance”.
Tutorials
The “Python guide to accompany Introdcutory Econometrics for
Finance” textbook is purely practical book.

11am-12pm
Tutorial 2pm-3pm
17th 14th
November
November

9am –11am 9am - 11am

Lecture 21th 21st Read Textbook: Python Guide to Accompany Introductory Econometrics for
11. Modelling November November
Seasonality - Finance, by Chris Brooks, 4ed – Chapter 20 (Section 20.1 only): Modelling
nonlinear
models 2pm-3pm 11am -12pm seasonality in financial data.
Tutorial 24th 21st
November November

9am –11am 9am - 11am

Lecture 28th 28th
November November

12. Course Revision Read through materials for weeks 7 to 12. Write up Coursework nr. 2.
11am -12pm
2pm-3pm 28th
Tutorial 2nd November
December

Topics for which a recording will be provided and will not be assessed:

1. Sentiment Analysis and topic modelling – extracting information from real life news broadcast on the internet.
2. Modelling financial data in crisis/non-crisis periods – regime switching models.

Session times are all local time: Dubai is 3 hours ahead and Malaysia 7 hours ahead of UK time up until Sunday 30th
October 2022, on this date the UK moves from BST (British Summer Time) to GMT (Greenwich Mean Time) and then
Dubai will be 4 hours and Malaysia 8 hours ahead of the UK through until Sunday 26 th March 2023.

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