Financial Economics

This course introduces the core theory of financial economics, with a focus on key topics such as asset pricing, market efficiency, and investment theory. As the lead instructor, I guided students through financial models and provided practical exercises in analyzing financial markets.

Course Content:

1. Decision Making Under Uncertainty:
   • Difference between certainty and uncertainty.
   • Expected utility and stochastic dominance.
2. Portfolio Choice:
   • Mean-variance approach and capital asset pricing model (CAPM).
3. Systems of Financial Markets:
   • Introduction to spot markets, contingent claims markets, and arrow securities.
4. Arbitrage and Option Pricing:
   • The role of arbitrage in financial markets.
   • Option pricing using Black-Scholes and Merton models.
5. Firms and Financial Markets:
   • Firm and stock market equilibrium.
   • Separation of ownership and control in financial markets.
6. Debt Contracts and Credit Rationing:
   • Adverse selection and credit rationing in financial markets.
7. Deposit Contracts and Banking:
   • Introduction to banking systems and deposit contracts.
   • The role of bank runs and deposit insurance.
8. Regulation of Banks:
   • Bank regulations and the rationale behind them.
   • Reserve requirements and capital adequacy.
9. Present-Value Relations:
   • The relationship between stock prices, dividends, and returns.

Teaching Methodology:

The course combined theoretical lectures with practical applications. Students applied financial models to real-world data using R programming for financial analysis.

Hours: 40 hours

Recommended Textbooks:

• “The Econometrics of Financial Markets” by John Y. Campbell, Andrew Lo, and A. Craig MacKinlay, Princeton University Press.
• “Time Series Analysis” by James Hamilton, Princeton University Press, 1994.
• “Analysis of Financial Time Series” by R. S. Tsay, 3rd edition, People’s Posts and Telecommunications Press, 2012.