ECTS - University of Pisa
This course aims to provide a modern theoretical foundation for the most widespread notions and tools in financial economics, including present value theory, real interest rate, arbitrage pricing, portfolio management and mean-variance analysis.
During the course, the students are given five assignments, related to the progression of topics. They are required to solve the assignments individually. The assignments are graded by the teachers and corrected in the classroom. The final exam is written, but it is possibly followed by an interview following a request by the student.
The students should become acquainted with the notion of arbitrage and equilibrium price in different market settings. The students should be able to solve the problem of portfolio optimization and mean-variance analysis in rather general terms.
https://esami.unipi.it/esami/findcourse.php?id=55931
Individual assignments, written final exam possibly followed by an interview.
The students are supposed to develop a correct assessment of the merits of different economic models and their application to real financial problems.
Individual assignments, written final exam possibly followed by an interview.
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.
A course of financial mathematics could be a good complement to the present course.
No.
Lectures, exercise sessions, assignments, and suggested readings.
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
Financial Economics, T. Hens and M. O. Rieger
None.
Written tests and (optional) oral exams.
None
