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ECON 251

Financial Theory

Undergraduate · Historical course

Fall 2009

Topics

  • Why Finance?
  • Utilities, Endowments, and Equilibrium
  • Computing Equilibrium
  • Efficiency, Assets, and Time
  • Present Value Prices and the Real Rate of Interest
  • Irving Fisher's Impatience Theory of Interest
  • Shakespeare's Merchant of Venice and Collateral, Present Value and the Vocabulary of Finance
  • How a Long-Lived Institution Figures an Annual Budget; Yield
  • Yield Curve Arbitrage
  • Dynamic Present Value
  • Social Security
  • Overlapping Generations Models of the Economy
  • Demography and Asset Pricing: Will the Stock Market Decline when the Baby Boomers Retire?
  • Quantifying Uncertainty and Risk
  • Uncertainty and the Rational Expectations Hypothesis: Applications to Predicting Stock Prices, Default Probabilities, and Hyperbolic Discounting
  • Backward Induction and Optimal Stopping Times
  • Callable Bonds and the Mortgage Prepayment Option
  • Modeling Mortgage Prepayments and Valuing Mortgages
  • History of the Mortgage Market: A Personal Narrative
  • Dynamic Hedging
  • Dynamic Hedging and Average Life
  • Risk Aversion and the Capital Asset Pricing Theorem
  • The Mutual Fund Theorem and Covariance Pricing Theorems
  • Risk, Return, and Social Security
  • The Leverage Cycle and the Subprime Mortgage Crisis
  • The Leverage Cycle and Crashes

Readings

  • Bodie, Zvi, and Robert C. Merton. Finance, Upper Saddle River, New Jersey: Prentice Hall, 2000.
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  • Chance, Don M. An Introduction to Derivatives, 3rd edition, Fort Worth, Texas: The Dryden Press, Harcourt Brace College Publishers, 1995.
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  • DeGroot, Morris H. Probability and Statistics, Reading, Massachusetts: Addison-Wesley Publishing Co., 1975.
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  • Elton, Edwin J. and Martin J. Gruber. Modern Portfolio Theory and Investment Analysis, 5th edition, New York: John Wiley & Sons, Inc., 1995.
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  • Fabozzi, Frank. Handbook of Mortgage Backed Securities, 6th edition, New York: McGraw-Hill, 2001.
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  • Fabozzi, Frank J. Handbook of Fixed Income Securities, 6th edition, New York: McGraw-Hill, 2000.
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  • Hull, John C. Options, Futures, and Other Derivatives, 5th edition, Upper Saddle River, New Jersey: Prentice Hall, 2002.
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  • Jarrow, Robert and Stuart Turnbull. Derivative Securities, 2nd edition, Cincinatti, Ohio: South-Western College Publishing, 2000.
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  • Luenberger, David G. Investment Science, New York: Oxford University Press, 1998.
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  • Malkiel, Burton. A Random Walk Down Wall Street , New York: W.W. Norton, 1999.
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  • Pliska, Stanley R. Introduction to Mathematical Finance . Discrete Time Models, Malden, Massachusetts: Blackwell Publishers, 1997.
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  • Ross, Stephen, Randolph Westerfield, and Jeffrey Jaffe. Corporate Finance , New York: Irwin, McGraw Hill, 1999.
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  • Sharpe, William F., Gordon J. Alexander, and Jeffery V. Bailey. Investments, 6th edition, Upper Saddle River, NJ: Prentice Hall, 1999.
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  • Swensen, David F. Pioneering Portfolio Management. An Unconventional Approach to Institutional Investment, New York: The Free Press, 2000.
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  • Taggart, Jr, Robert A. Quantitative Analysis for Investment Management, Upper Saddle River, New Jersey: Prentice Hall, 1996.
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  • Tobin, James with Stephen Golub. Money, Credit, and Capital, Boston: Irwin-McGraw Hill, 1998.
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Sources