FINANCIAL ECONOMICS

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

The course provides an introduction to financial contracts and financial markets following an economic perspective. Students are introduced to the role of financial intermediaries, to financial contracts, to financial markets and their role in an economy, to optimal portfolio decisions, and to the determination of prices in financial markets, using both equilibrium and arbitrage arguments.

1. Knowledge and Understanding:
At the end of the course, the student is able to understand the fundamental models for pricing financial securities (bonds, stocks, derivatives), to grasp the benefits for consumers in trading financial assets, and to assess the implications of such trades in terms of social welfare.

2. Ability to apply knowledge and understanding:
At the end of the course, the student is able to price simple financial securities using the no-arbitrage principle and to derive optimal portfolio choices in basic settings with a limited number of assets, both under mean-variance criteria and under expected utility maximization.

3. Ability to make judgments:
At the end of the course, the student is able to use the acquired knowledge to:
a) represent simple problems involving the trading of financial securities, identify the determinants of supply and demand, and understand the practical meaning of the results obtained;
b) critically compare different portfolio choice models and discuss their possible limitations;
c) discuss real-world cases taken from financial newspapers or current events.


4. Learning Skills:
At the end of the course, the student is able to use the acquired knowledge to:
a) Develop the ability to analyze problems from the perspective of different stakeholders.
b) Reframe financial problems by considering alternative initial assumptions.
c) Adapt to new analytical tools and continuously refine problem-solving skills.

Mandatory prerequisites: Microeconomics, see for more details https://www.unive.it/web/en/4624/exams

The course assumes prior knowledge of basic concepts in microeconomics (budget constraint, indifference curves, consumer choice, market equilibrium, linear utility, Cobb-Douglas utility), probability (mean and variance), calculus (vectors, linear dependence, matrices, solving linear systems, differentiation, constrained static optimization), and public economics (Edgeworth box, first welfare theorem), as covered in the courses of the first three semesters of the degree program.

Students gain general knowledge about financial economics. After an introduction to the characteristics and functioning of financial markets, the major financial economics models are analyzed. Starting from the standard theory of decisions under uncertainty, we formulate simple economic models with financial markets to determine the value of interest rates and stochastic discount factor in equilibrium. The central part of the course is the study of static portfolio choices, with particular reference to the Mean-Variance Portfolio Theory of Markowitz. The deals also with arbitrage theory an to its application to the pricing of financial derivates.

More in details, the following topics are discussed-

Introduction to Financial Markets
- Functions and structure of financial markets
- Stock market indexes (additional and non compulsary)

Decisions under risk
- Utility maximization under risk
- Von Neumann-Morgenstern expected utility theory
- Risk aversion

Equilibrium in financial economies
- Interest rates and intertemporal preferences
- Stochastic discount factor and risk preferences

Static Portfolio Choices
- Portfolio choices with one risky and one risk-less asset
- Markowitz Mean-Variance Portfolio Theory

Arbitrage Theory
- Arbitrage
- Complete and incomplete markets
- The fundamental theorem of financial evaluation
- An introduction to the pricing of derivates

The course material is composed of lecture notes made available in advance on the moodle platform and selected chapters from

- Investments, Zvi Bodie Alex Kane Alan J. Marcus , 10th Edition. [BKM]
- The Economics of Financial Markets, Roy E. Bailey, Cambridge University Press, 2005. [B]

Other useful textbooks are

- 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]

The final assessment consists of a written exam lasting 80 minutes, including exercises and theoretical questions covering various parts of the course, for a total of 4 questions. The exercises are similar to those presented weekly in class and assigned to students as homework (assignments). During the exam, the use of books, notes, phones, or any other electronic device is prohibited, except for a calculator. There is no option to take the exam in oral form. Examples of past exam papers are made available on the Moodle platform.

written

The exam covers a selection of topics addressed during the course. The aim of the assessment is to evaluate the extent to which the expected learning outcomes, as described in the previous sections of this syllabus, have been achieved. In particular, the exam assesses the knowledge and understanding of the course content, as well as the ability to apply these concepts to analyze portfolio choices, arbitrage pricing, and equilibrium in stylized financial markets, including their implications for social welfare and regulation.

The exam is divided into four questions, which include both theoretical questions and numerical exercises, similar to those discussed in class and assigned weekly.

The exam is considered passed with a minimum score of 18 out of 30. Each of the four questions is graded on a scale of up to 8 points, depending on whether the answer is: unsatisfactory (up to 2 points), partially satisfactory (up to 4 points), satisfactory (up to 6 points), fully satisfactory (up to 8 points). The total exam score is the sum of the points from the four questions, plus the evaluation of the weekly homework assignments (worth up to 2 additional points).

Overall, grades within 18 and 22 will be assigned in case of:
- sufficient knowledge of the main content of the program;
- limited ability to solve exercises;

Grades within 23 and 26 will be assigned in case of:
- discrete knowledge of the main content of the program;
- discrete ability to solve exercises;

Grades within 27 and 30 will be assigned in case of:
- good or optimal knowledge of the main content of the program;
- good or optimal ability to solve exercises, elaborate and interpret its results, also providing a critical view on them


The grade 30 cum laude is assigned when the student shows excellent abilities to handle the content of the program of the course, ability to solve exercises and proof of excellent critical thinking.

Lectures and individual study. Two-thirds of the lectures are devoted to introducing the concepts from a theoretical perspective. The remaining third is dedicated to the practical application of these concepts through exercises aimed at facilitating a better understanding of the theoretical part. A significant number of these exercises are similar to those assigned in the exam.

Active participation in lectures is strongly recommended. Active participation implies reading the relevant textbook chapters before class and independently completing the exercises suggested by the instructor.

The content of each lecture is uploaded on the Moodle platform.

The detailed programme for the exam and all the mandatory supplementary material will be made available during the course through the Moodle area accessible from the lecturer's web page.

-------------------------------

Accessibility, Disability and Inclusion
Accommodation and support services for students with disabilities and students with specific learning impairments

Ca’ Foscari abides by Italian Law (Law 17/1999; Law 170/2010) regarding support services and accommodation available to students with disabilities. This includes students with mobility, visual, hearing and other disabilities (Law 17/1999), and specific learning impairments (Law 170/2010). If you have a disability or impairment that requires accommodations (i.e., alternate testing, readers, note takers or interpreters) please contact the Disability and Accessibility Offices in Student Services: disabilita@unive.it

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