FINANCIAL ECONOMICS

Financial Economics is in the class of core educational courses of the program and it is meant to provide the students with the basic knowledge of financial economics.

Decision Theory [Week 1]
– Preferences;
– Utility Maximization;
– Risk and Uncertainty;
– Von Neumann-Morgenstern expected utility theory;
– Introduction to “Subjective Expected Utility” (optional, time permitting);
– Prospect Theory (optional, time permitting).

Introduction to Financial Market [Week 2]
– Functions and structure of financial markets;
– Efficient market hypothesis and rational expectations; – Asset market microstructure;
– Behavioral finance (optional, time permitting).

Arbitrage Theory [Week 3]
– Arbitrage;
– Complete markets and the “First Fundamental Theorem of Finance”;
– Incomplete markets and the “Second Fundamental Theorem of Finance”.

Static Portfolio Choices [Week 4]
– Portfolio choices;
– Markowitz Mean-Variance Portfolio Theory;
– Equilibrium model: Capital Asset Pricing Model (brief, no derivation);
– Implications of non-rational decision makers (optional, time permitting).

Dynamic Portfolio Choices [Week 5]
– Black-Scholes-Merton model.

Basci knowledge of economics, statistics and mathematics as acquired in the first year of the course

Students gain general knowledge about financial economics. Starting from foundation concepts of decision theory the course goes through the standard theory of decisions under uncertainty; we then introduce financial markets and discuss the basic arbitrage theory. The central part of the course is the study of static portfolio choices, with particular reference to the “Markowitz Mean-Variance Portfolio Theory”. In the end, we propose an introduction to dynamic portfolio choices.

The main material is slides. Some other useful books are:

- Investments, Zvi Bodie Alex Kane Alan J. Marcus , 10th Edition. [BKM]
- The Economics of Financial Markets, Roy E. Bailey, Cambridge University Press, 2005. [B]
- Microfoundations of Financial Economics, Yvan Lengwiler, Princeton University Press, 2004. [L]
- The Economics of Money, Banking, and Financial Markets, Frederick S. Mishkin, Kent Matthews, Massimo Giuliodori 10th edition. [MMG]

A detailed description of the chapters and pages will be given in class and written in the syllabus.

Written exam at the end of the course plus (optional) oral exam.

Teaching methods: (i) Lectures, (ii) weekly exercises, (iii) group work to elaborate the material to go into the essays.

Course material can be found on

- moodle: https://moodle.unive.it/login/index.php

- lecturer web page: https://sites.google.com/view/sebastianodellalena/teaching/financial-economics?authuser=0

English

written

This subject deals with topics related to the macro-area "Poverty and inequalities" and contributes to the achievement of one or more goals of U. N. Agenda for Sustainable Development