Financial Economics, Risk and Information
An Introduction to Methods and Models
Description:... 1. Basic mathematical tools. 1.1. Introduction. 1.2. Integration. 1.3. Basic statistics. 1.4. Basic linear algebra. 1.5. Static optimization. 1.6. Notes on stochastic difference equations. 1.7. Dynamic optimization in discrete time: heuristics of dynamic programming in the certainty case. 1.8. Stochastic dynamic optimization in discrete time. 1.9. Notes on stochastic differential equations. 1.10. Stochastic dynamic optimization in continuous time. 1.11. Summary -- 2. Mean-variance approach to financial decision-making. 2.1. Introduction. 2.2. Portfolio mean return and variance. 2.3. The efficient frontier. 2.4. Two-fund theorem, the risk-free asset and one-fund theorem. 2.5. The pricing of assets in the mean-variance framework and the no-arbitrage theorem. 2.6. Summary -- 3. Expected utility approach to financial decision-making. 3.1. Introduction. 3.2. The Von-Neumann-Morgenstern (VNM) framework: probability distributions over outcomes. 3.3. Measurement of risk aversion. 3.4. The VNM framework: state dependent utility. 3.5. Portfolio choice and comparative statics with VNM state independent expected utility. 3.6. The quadratic utility function. 3.7. Diversification, risk aversion and non-systematic risk. 3.8. Summary -- 4. Introduction to systems of financial markets. 4.1. Introduction. 4.2. Pricing securities in a linear fashion. 4.3. Optimal portfolio choice problems. 4.4. Pricing the states of nature. 4.5. Market regimes: complete versus incomplete. 4.6. Optimal portfolio choice and the price of elementary securities (state prices). 4.7. Individual optimal allocation under complete markets regime: an example. 4.8. General equilibrium under complete markets regime: full risk sharing. 4.9. General equilibrium under incomplete markets regime. 4.10. A simple geometrical illustration of market regimes. 4.11. Application to the neoclassical theory of the firm. 4.12. Summary -- 5. Contracts, contract design, and static agency relationships. 5.1. Introduction to bilateral relationships and contracts. 5.2. Theories of the firm: agency, transactions costs and property rights. 5.3. Summary I. 5.4. Introduction to adverse selection. 5.5. The principal-agent relationship. 5.6. A simple example in insurance markets. 5.7. Mechanism design: a problem of price discrimination. 5.8. Adverse selection in credit markets and the possibility of credit rationing. 5.9. Signaling. 5.10. Summary II. 5.11. Introduction to moral hazard. 5.12. Finite number of actions and outcomes, principal and agent both risk neutral. 5.13. Variations with finite number of actions, principal is risk neutral, agent is risk averse. 5.14. Infinite number of actions and first order approach, principal is risk neutral, agent is risk averse. 5.15. Summary III. 5.16. Asset returns and moral hazard. 5.17. Basic model. 5.18. Equilibrium asset returns. 5.19. Summary IV
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