FINANCIAL ECONOMICS

Professor

Degree Programmes and curricula

Contents

Educational Goals

The objective of the course consists in introducing theoretical and computational methods for static and dynamic portfolio optimization problems and to teach the fundamentals of asset pricing introducing students to the world of financial economics where theories most of the time are working but many puzzles are still unsolved.

Requirements

You are expected to be comfortable with basic undergraduate course on linear algebra, linear and nonlinear optimization, probability theory and on theory of finance. Some knowledge on consumption based and general equilibrium models may help. You are expected to read a lot on your own and come to class prepared.

Contents

1. Classical approaches proposed in literature to static and dynamic portfolio optimization problems with issues addressed by recent research contributions in the field.
2. Tools to analyze and solve a variety of investment problems both with respect to the objective functions and with respect to the considered constraints.
3. Mathematical techniques for the solution of the resulting optimization problems.
4. Asset pricing.
5. Capital structure.
6. Financial market microstructure.

Recommended Reading List

Chapters of books and research papers will be used. Chapters covering some of the topics
in the course are listed below; others references will be made available during the course.

1) F.R. Chang (2004), Stochastic Optimization in Continuous Time, Cambridge University Press. [Chapters 4 and 5]
2) E.J. Elton and M.J. Gruber (1995), Modern Portfolio Theory and Investment Analysis, John Wiley & Sons. [Chapter 6 and 11]
3) J.E. Ingersoll jr. (1987), Theory of Financial Decision Making, Rowman & Littlefiel Publishers. [Chapter 4]
5) R.C. Merton (1990), Continuous Time Finance, Basil Blackwell. [Chapters 4 and 5]
6) R.C. Pliska (1997) Introduction to Mathematical Finance. Discrete Time Models, Blackwell Publishing. [Chapters 3 and 5]
7) G.P. Szego (1980), Portfolio Theory with Application to Bank Asset Management, Academic Press. [Chapters 1, 2, 6, 8, 10 and 12]
8) Cochraine (2005), Asset Pricing, Princeton Unversity press. [Chapters 1?6]
9) Cuthberstortson K and D. Nitzsche (2005) Quantitative Financial Economics, Wiley [Chapters 13, 14]
10) Grinblatt M. and S. Titman (2001), Financial Markets and Corporate Strategy, Irwin, [Chapters 4, 5, 6]
11) Blanchard J. and S. Fisher (1998), Lectures on Macroeconomics [Chapters 6, 10]

Assessment

oral

Teaching Methods

Standard lectures.

Teaching Language

English.

Other information

The course grade will depend on:
- class participation;
- two homeworks;
- a final discussion on a research topic related to the course, exploring both theoretical aspects and computational ones.