IAM524 FINANCIAL ECONOMICS

Course Objectives

This course focuses on:

• the different criteria that can be used by financial decision makers under uncertainty and the following optimal choices
•  the analyses of the optimal portfolio formation processes
•  the core asset pricing models: the Capital Asset Pricing Model and the Arbitrage Asset Pricing Model
• the interactions of economic agents under uncertainty with the general equilibrium approach

Course Content

The focus of this course is on asset pricing. The topics that will be discussed can be summarized as follows: Individual investment decisions under uncertainty are analyzed and the optimal portfolio theory is discussed using both static and dynamic approach. Then the theory of capital market equilibrium and asset valuation is introduced. In this context several equilibrium models of asset markets are presented. These include the Arrow-Debreu model of complete markets, the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT). Besides mutual fund separation and aggregation theorems are analyzed. Finally, the financial decisions of firms are considered and the Modigliani-Miller theorems are analyzed.

Course Learning Outcomes

The succesful student will be able to:

• analyze different financial decision making criteria and the associated optimal choices
• solve optimal portfolio management problems
• use the core asset pricing theories to understand financial pheomena in financial markets
• identify financial interactions of the economic agents in examining financial markets and in solving financial problems