Foundations of Financial Economics: 2021-2022


Organization

Instructor: Paulo Brito
Schedule: Fridays (between February 18th and May 14th) 18h-21h
Room: 118 (F1)
Office hours: Fridays (between February 18th and May 20th) 11-12h (upon confirmation).
Rules: Regulation at ISEG
Assessment: written exam (in class).

Overview

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

It aims to provide foundations on:

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

Program

  1. Introduction

  2. Basic utility theory

  3. Deterministic GE (two-period) and asset pricing

  4. Contingent goods and choice under uncertainty

  5. Two period stochastic general equilibrium (SGE) in exchange Arrow-Debreu economies:

    1. Environment, contracts, markets and models

    2. Arrow-Debreu equilibrium for an exchange economy

  6. Financial markets and the arbitrage pricing theory

  7. Two period stochastic general equilibrium (SGE) and asset pricing in exchange finance economies:

  8. Two period SGE models: extensions

    1. Production economies

    2. Heterogeneous agents

    3. Limited participation

    4. Moral hazard

  9. Multi-period period DSGE:

    1. Introduction to stochastic processes

    2. AD economies

    3. Finance economies: the household problem

    4. Finance economies: general equilibrium

TopicSlides Problem sets Other material




1Introduction
2 Basic utility theory Problem set 1
3.1 Household problem in a deterministic environment Problem set 2
3.2 Two-period deterministic DGE Problem set 2 (questions (c))
4 Contingent goods and choice under uncertainty Problem set 3 R script for problem 9
5 1 Two-period DSGE: introduction
5 2 Exchange Arrow-Debreu economies Problem set 4: two-period AD
6 Financial markets and the arbitrage pricing theory Problem set 5
7 DGSE for a finance economy Problem set 6: two-period FE
8.2 Heterogeneous-agent economies Problem set 7: heterogenous agent economies
8.3 Limited participation
8.4 Moral hazard




Disclaimer: the slides, the problem sets and some solutions will be provided before the class but can be modified afterwards. The final version will be posted before the 21st May. Please check the date of document. You can find last year’s version is here

References

Some references

[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.

[Campbell(2017)]   John Y Campbell. Financial Decisions and Markets: A Course in Asset Pricing. Princeton University Press, ebook edition, 2017. ISBN 1400888220,9781400888221.

[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

Data

Exams exams

2017/18 EN , 2017/18 ER , 2020/21 EN , 2020/21 ER


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Posted in May 13, 2022