Foundations of Financial Economics: 2019-2020
Instructor: Paulo Brito
Schedule: Fridays (between February 21st and May 22nd) 18h-21h
Room: 118 (F1)
Office hours: Fridays (between February 21st and May 22nd) 11-12h (upon
Assessment: written exam
This is an introductory course on general equilibrium asset pricing theory.
It aims to provide foundations about:
- asset pricing determination in general equilibrium models;
- in deterministic and stochastic settings;
- in simultaneous and sequential economies;
- from simple two-period to multi-period models.
Introductory results on the tools needed (v.g., calculus, optimization, probability)
will be provided along the way.
- Basic utility theory
- Two-period deterministic general equilibrium (DGE) and asset pricing:
- Contingent goods and choice under uncertainty
- Two period stochastic general equilibrium (SGE) in exchange Arrow-Debreu
- Exchange Arrow-Debreu economies
- Two period stochastic general equilibrium (SGE) and asset pricing in exchange
- Financial markets and the arbitrage pricing theory
- DGSE for a finance economy
- Two period SGE models: extensions
- Production economies
- Heterogeneous-agent economies
- Financial frictions: Limited participation ; Moral hazard
- Multi-period period DSGE:
- Introduction to stochastic processes
- Finance economies
, , , , ,
[Altug and Labadie(2008)] Sumru Altug and Pamela Labadie. Asset pricing
for dynamic economies. Cambridge University Press, 2008.
[Bikhchandani et al.(2013)Bikhchandani, Hirshleifer, and Riley]
Sushil Bikhchandani, Jack Hirshleifer, and John G. Riley. The analytics
of uncertainty and Information. Cambrdge University Press, 2nd edition,
[Lengwiler(2004)] Yvan Lengwiler. Microfoundations of Financial
Economics. Princeton Series in Finance. Princeton University Press, 2004.
[LeRoy and Werner(2014)] Stephen F. LeRoy and Jan Werner. Principles
of Financial Economics. Cambridge University Press, Cambridge and New
York, second edition, 2014.
[Ljungqvist and Sargent(2018)] Lars Ljungqvist and Thomas J. Sargent.
Recursive Macroeconomic Theory. MIT Press, Cambridge and London, 4th
Financial history: very long run
Financial history: shorter-run
Course material: current year
Problem sets 1 to 5
Course material: previous years
R script for problem 8 PS1
2017/18 EN , 2017/18 ER