Macroeconomic Foundations for Asset Prices

(3 Credits)

The term "business cycles" refers to the ups and downs of the economy: fluctuations, in other words, in the growth rate of GDP. Prices of bonds, equity indexes, and options on equity indexes are all closely related to these fluctuations. We develop the tools needed to establish a statistical connection between business cycles and asset prices and a theoretical foundation for it. Numerical computations are used to develop the theory in realistic ways. The course gives students a deeper understanding of macroeconomic fluctuations and asset pricing, the tools needed to develop this understanding, and extensive experience programming with Matlab.