Contents |
Course Title
Financial Economics
Course Code
IAM 524
Credit
(3-0) 3
Prerequisites
Consent of the instructor
Content
Competitive Models with Symmetric Information : Arbitrage and Martingales, Pricing and Hedging Contingent Claims, Consumption and Portfolio Decisions, Walrasian Equilibrium Theory and Term Structure of Interest Rates. Strategic Models with Asymmetric Information: Market Microstructure : A Critique of the Walrasian Equilibrium : The Informational Role of Prices, The Rational Expectations Equilibrium (REE) Concept and Problems, Noisy REE: Aggregation and Transmission of Information, Trading contraints and New Problems, Market Structure and Regulation, Asymmetric Information Models of Market Making, Homogeneous Information Models of Market Making, Intraday transaction Prices and Volumes.
Aims
This course focuses on asset pricing and portfolio theory. The first part of the course assumes that all market participants have the same information, while the second part focuses on models where differemt market participant have different information. Introducing asymmetric information sheds light on the rasons of stock market crashes, herd-book, bubbles etc.
Suggested Textbooks
Lecture notes prepared by Esma Gaygısız
Syllabus
Part I Competitive Models with Symmetric Information
- Arbitrage and Martingales
- Pricing and Hedging Contingent Claims
- Consumption and Portfolio Decisions
Complete Makets Incomplete Markets and Portfolio Constraints
- Equilibrium Theory and Term Structure of Interest Rates
Intertemporal Capital Asset Pricing Models Term Strcture of Interest Rates Pricing Financial Futures and Forwards Part II Strategic Models with Asymmetric Information and Market Microstructure
- A Critique of the Walrasian Equilibrium : The Informational Role of Prices
- The Rational Expectations Equilibrium (REE) Concept and Problems
- Noisy REE: Aggregation and Transmission of Information
- Trading contraints and New Problems
- Market Structure and Regulation
- Asymmetric Information Models of Market Making
- Homogeneous Information Models of Market Making
- Intraday transaction Prices and Volumes
Resources
- J. Eichberger and I. R. Harper, Financial Economics, Oxford University Press, 1997
- Theory of Financial Decision Making, Jonathan E. Ingersoll, Jr.,
Rowman and Littlefield Publishers, 1987
- Asset Pricing, John Cochrance, Princeton University Press, 2001
Dynamic Asset Pricing Theory Darrell Duffie Princeton University Press, 1996
- Theory of Incomplete Markets, Magill and Quinzii, MIT Press, 1996
- S. Grossman The Informational Role of Prices MIT Press, 1989
- M. O’Hara, Market Microstructure Theory Blackwell Publishers, 1997