Financial Economics

(2.5-3 Credit Hours) · Undergraduate

At UCD: This module aims to describe and understand financial crises from the seventeenth century until the twenty-first. It combines therefore a mix of economic history with financial economics and macroeconomics. As well as stock market crashes and bank collapses, the course will consider more slowly unfolding episodes such as the gold standard during the inter-war period and the similar Eurozone crisis since 2008. In Singapore: This module is an introduction to financial economics and investments. The module consists of two main parts. The first part covers portfolio theory, starting from common measures of risk and return, the historical returns of different investment options such as stocks and bonds over different investment horizons, the benefit of diversification, the decomposition of risk into diversifiable and nondiversifiable risks, the market portfolio (including mutual funds and index funds) and ending with the Capital Asset Pricing Model (CAPM) and a multifactor model of risks. We will discuss how CAPM can be used to price any risky investment or to estimate the equity cost of capital. The second part covers valuation models of bonds and fixed income securities (including perpetuity and annuity), and derivative securities such as options that derive their value from some underlying securities. In the second part, we will cover models and concepts such as arbitrage, leverage, yield to maturity, the term structure of interest rates or yield curve, duration and convexity (and how to use these to manage interest rate risk), the Black-Scholes model, binomial option pricing model, and risk neutral valuation. We will discuss how to use these financial instruments to hedge or reduce risk. At NUIG: This module provides an introduction to financial economics, with an emphasis on combining knowledge of real world financial markets and data, with economic theory, and with analytical statistical methods, to value financial instruments and analyse portfolios.