Rigorous and in-depth treatment of foundadtions of financial economics in discrete time.
Content:
The course provides a modern advanced treatment of principles of financial economics. Security prices under no-arbitrage. Introduction to utility theory. Pricing in competitive economies, first-principles derivations of the capital asset pricing model (CAPM). Valuation in a multi-period framework. Consumption-based asset pricing model and the fundamental asset pricing equation. The stochastic discount factor (SDF) and beta-representations. Relation between SDF, betas and the mean-variance frontier. Linear SDF models revisited: aribtrage pricing theory and the intertemporal CAPM.
The covered topics concern modern financial challenges in terms of financing decisions, pricing of complex claims or asset management strategies.
Literature:
- Huang, Chi-fu and Litzenberger, Robert H., 1998: „Foundations for Financial Economics“, 1st Ed., Upper Saddle River, Prentice Hall.
- Ingersoll, Jonathan E., 1987: „Theory of Financial Decision Making“, 1st Ed., Lanham, Rowman & Littlefield Publishers.
- Cochrane, John H., 2005: „Asset Pricing“, New Ed. Revised Ed., Princeton, Princeton University Press.
Link to ILIAS.
