ECTS - University of Pisa
The students should become acquainted with the notion of arbitrage pricing and economic equilibrium in different market settings. They should be able to solve the problem of portfolio optimization and mean-variance analysis in rather general terms.
The acquisition of knowledge will be monitored through a series of individual written assignments provided during the course. The final assessment will be based on a written and an oral exam at the end of the course.
Students will learn how to frame financial analysis in a more general economic framework. They will improve their ability is solving economic optimization problems both in static and dynamics settings.
The acquisition of skills will be monitored through a series of individual written assignments provided during the course. The final assessment will be based on a written and an oral exam at the end of the course.
The course will propose an open-minded analysis of both theoretical and empirical questions in modern finance and economics. This is meant to enhance the critical attitude and capability of students.
The students will be invited to propose alternative solutions and interpretations of results during the solutions of exercises and assignments.
The course requires a basic knowledge of linear algebra (linear space, linear map, basis, inversion, eigenvectors, and eigensystems), calculus (differential analyses of function of many real variables, and static optimization), and, to a lesser extent, probability theory. Some basic knowledge of the theory of choice under uncertainty (utility theory) and economic equilibrium are in general given for granted and only cursorily reviewed.
During lectures, the teacher writes on board while presenting and discussing the topics, sometimes proposing exercises to the classroom. Students are invited to freely interrupt the teacher and ask questions if necessary. Supplementary material will be provided through a shared online folder.
General equilibrium, no-arbitrage in riskless economies, real interest rate, and the yield curve. Arbitrage in security markets, state prices, complete and incomplete markets, valuation functional, and the fundamental theorem of finance. Choices under uncertainty, expected utility theory, and risk aversion. Portfolio choices, optimal portfolio with multiple risky assets. General equilibrium under uncertainty. Pricing kernel and mean-variance analysis. OPTIONAL: behavioral finance, asset prices under ambiguity, evolutionary finance, and the market selection hypothesis.
Principles of Financial Economics, S.F. LeRoy and J. Werner
Foundations of Financial Markets and Institutions, Fabozzi, Modigliani and Jones
The exam is made up of one written test and one oral test.
