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Магистратура 2021/2022

Финансовая экономика: Финансовые рынки

Статус: Курс обязательный (Финансовая экономика)
Направление: 38.04.01. Экономика
Когда читается: 1-й курс, 3, 4 модуль
Формат изучения: без онлайн-курса
Охват аудитории: для своего кампуса
Прогр. обучения: Финансовая экономика
Язык: английский
Кредиты: 6

Course Syllabus

Abstract

Prerequisites: microeconomics (concepts of utility functions, constraint utility maximization, market clearing), a good understanding of calculus, algebra, and basic probability theory. This course gives an introduction to the economics and mathematics of financial markets. Being the first course in finance within the ICEF Master Programme in Financial Economics, it introduces the students to the relevant modeling techniques for asset pricing. This will be useful for later courses in Corporate Finance, Fixed Income, Derivatives and Risk Management. The course introduces to the two pricing principles: absence of arbitrage and equilibrium based on individual optimality. The first principle is especially useful for pricing derivative instruments (e.g. an option contract) whenever we know (or assume to know) the dynamics of the price of the underlying asset (e.g. a stock). In order to price the whole universe of financial assets, however, we need to investigate how investors choose their consumption and the composition of their investment portfolios (individual optimality) and how the coordination of these investors on the financial markets leads to the formation of prices (equilibrium analysis). Most of the course covers one-period models and dynamic models in discrete time. However, some equilibrium models are presented in continuous time since this makes them more tractable and they have more elegant solutions. Option pricing in continuous time is left for the 2nd year course in Derivatives. Although the focus of the course is on theory, we shall comment on some empirical evidence and on how these theories are used in financial practice.
Learning Objectives

Learning Objectives

  • The goal of the course is to introduce the students to the relevant modeling techniques for asset pricing.
Expected Learning Outcomes

Expected Learning Outcomes

  • - use basic concepts and terminology met in books and articles on finance
  • Apply no-arbitrage pricing in the dynamic context
  • Apply representative agent analysis to solve a simple portfolio choice problem and determine equilibrium expected returns
  • Be able to build a social welfare function
  • Be able to express equilibrium prices under the physical and the risk-neutral measures
  • be able to price vanilla bond instruments
  • construct efficient frontiers and find the optimal portfolio by applying mean-variance analysis
  • construct replication portfolio and Binomial trees for option pricing
  • differentiate between two types of arbitrage strategies
  • explain and apply the No-Arbitrage Principle for pricing contingent claims
  • explain the application o findividual preferences theory in the financial models
  • Explain the application of probability theory to the modeling of the flow of information in dynamic economies
  • Explain the basic Arrow-Debreu framework and how it relates to the financial market framework
  • Explain the connection with informational efficiency
  • explain The Fundamental Theorem of finance and market completeness concept
  • Explain the intuition behind the two-fund separation theorem and the CAPM formula
  • List the particular properties of economies where agents have linear risk tolerance
  • List the properties of mean-variance economies and be able to compare them to economies with linear risk tolerance
  • outline principles of dynamic programming in financial models
  • Outline the notions of Pareto and constrained Pareto optimality
  • use mean-variance analysis in the environment with and without risk-free rate
  • - to form and diversify portfolios of assets, - to find expected returns and risks of assets and portfolios of assets, - to find fair prices of financial assets and make investment decisions - to outline the notion of risk premium and models characterizing equilibrium risk premiums, - to identify the most common risk factors and estimate multifactor asset-pricing models, - to explain the most popular asset-pricing anomalies.
Course Contents

Course Contents

  • Basic Concepts in Financial Markets:
  • Contingent Claims, No-Arbitrage Principle and Derivative Pricing
  • Optimal Consumption and Portfolio Choice
  • PART 2
Assessment Elements

Assessment Elements

  • non-blocking home assignments
  • non-blocking Midterm Exam
  • blocking Final Exam
Interim Assessment

Interim Assessment

  • 2021/2022 3rd module
  • 2021/2022 4th module
    0.6 * Final Exam + 0.15 * home assignments + 0.25 * Midterm Exam
Bibliography

Bibliography

Recommended Core Bibliography

  • Brealey, R. A., & Myers, S. C. (2012). Principles of corporate finance. Slovenia, Europe: Irwin. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.BA880E76
  • Introduction to the economics and mathematics of financial markets, Cvitanic, J., 2004
  • Theory of Asset Pricing, Pennacchi, G., 2008

Recommended Additional Bibliography

  • Asset pricing, Cochrane, J. H., 2005