MSc Financial Economics / Course details

The aims of this course are to:

(i) introduce students to the allocation of risk in economic situations that involve uncertainty;

(ii) establish the link between economics and finance.

The aims of this course are to:

(i) introduce students to the allocation of risk in economic situations that involve uncertainty;

(ii) establish the link between economics and finance.

At the end of this course students should be able to demonstrate:

(i) an understanding of security pricing techniques;

(ii) an understanding of the analysis of the operation of financial markets using tools from economic analysis;

(iii) an ability to relate financial markets to the rest of the economic system

Provisional

The course will proceed as follows:

1. Uncertainty and risk

• states of nature
• contingencies (events)
• information
• contingent goods, contingent plans
• preferences over contingent plans
• alternative notions of risk

2. Alternative institutional contexts of risk sharing

• contingent markets
• security markets
• real/financial securities, bonds, stocks, options, derivative securities.

3. Individual behavior under uncertainty

• th

Lectures and tutorials

An indicative reference for this material is the book ‘The Theory of Incomplete Markets’ by M. Magill and M. Quinzii (although the technical level of the course will be much lower than in that book). Another reference for the material in this course is the book ‘Security Markets, Stochastic Models’ by Darrell Duffie. This book is recommended for the more technically experienced students. More information about the incomplete markets literature can be found in a special issue devoted to this subject, inside the 1990-91 volume of the Journal of Mathematical Economics. .

Pre-requiste: ECON20120/30320, ECON30432 or equivalent