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 confirmation).
Assessment: written exam


This is an introductory course on general equilibrium asset pricing theory.

It aims to provide foundations about:

Introductory results on the tools needed (v.g., calculus, optimization, probability) will be provided along the way.


  1. Introduction
  2. Basic utility theory
  3. Two-period deterministic general equilibrium (DGE) and asset pricing:
  4. Contingent goods and choice under uncertainty
  5. Two period stochastic general equilibrium (SGE) in exchange Arrow-Debreu economies:
    1. Introduction
    2. Exchange Arrow-Debreu economies
  6. Two period stochastic general equilibrium (SGE) and asset pricing in exchange finance economies:
    1. Financial markets and the arbitrage pricing theory
    2. DGSE for a finance economy
  7. Two period SGE models: extensions
    1. Production economies
    2. Heterogeneous-agent economies
    3. Financial frictions: Limited participation ; Moral hazard
  8. Multi-period period DSGE:
    1. Introduction to stochastic processes
    2. 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, 2013.

[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 edition, 2018.

Financial history: very long run

Financial history: shorter-run

Other data

Course material: current year

Problem sets


Problem sets 1 to 5

Course material: previous years

Course notes

Brito (2014)


R script for problem 8 PS1

Exams exams

2017/18 EN , 2017/18 ER

| Home

Posted in May 15, 2020