Financial Economics(Lei Sun)
Financial Economics
Course Basic Information:
Instructor: Lei (Jack) Sun
Office: C307
Email: sunlei@phbs.pku.edu.cn
Course Time: Monday and Wednesday 10:30-12:20
Location: C102
Office Hours: Monday 14:00-16:00 plus email appointment
Teaching Assistant: YI Jiao, lizzieye@gmail.com
Course Objectives:
This course is tailored for master students with economics/finance background. The goal of this course is to provide students with an understanding of the fundamental and central theories and techniques of financial economics at the Master’s level. Necessary mathematical derivation is compulsory in this course.
Course Contents:
Prerequisite---Some Basic Math Knowledge: Matrix Calculation, Lagrangian Multiplier, Chain Rule Differentiation, Taylor Series Expansion, and etc.
1: Expected Utility and Risk Aversion: St. Petersburg Paradox, Utility Function, Jensen’s Inequality, Risk Premium, and Absolute/Relative Risk Aversion.
2: Mean Variance Analysis: Efficient Frontier, Two/N Assets Examples, Portfolio Separation, Zero-Covariance Portfolio, and the Case with Riskless Asset.
3: Linear Factor Models: CAPM, Arbitrage, APT, Asymptotic Arbitrage, and Fama and French 3-Factor Model.
4: Consumption-Saving Decision, Stochastic Discount Factor and State Pricing: EIS, Stochastic Discount Factor, Equity Premium Puzzle, Arrow-Debreu Securities, Fundamental Theorem of Asset Pricing, Risk Neutral Probabilities, and Complete Markets,
5: A Multiperiod Discrete-Time Model of Consumption and Portfolio Choice: the Bellman Equation, Multiperiod Market Equilibrium, the Lucas Model of Asset Pricing, and Bubbles.
6: Kimball’s Model and the Introduction of Prudence: Prudence
7: Derivatives: European/American Options, Put-Call Parity, Option Bounds, Binomical Tree Method, and Early Exercise Provision.
8: More Contents will be Provided Conditionally.
Recommended Textbooks and Papers:
1: Theory of Asset Pricing, by George Pennacchi, 2007, Princeton University Press, Pearson.
2: Financial Economics: A Concise Introduction to Classical and Behavioral Finance, by Thorsten Hens and Marc Oliver Rieger, 2010, Springer.
3: Principles of Financial Economics, by Stephen F. Leroy & Jan Werner, 2001, Cambridge University Press.
Recommended papers will be provided in lecture notes.
Grading:
Midterm Exam: 30%
It will be held at the first lecture in week 5, lasting for 90 minutes. The scope of the exam includes all the material taught by the end of week 4.
Final Exam: 70%
It will be held at the end of this module, lasting for 2 hours. It covers all the contents in this course.
Plagiarism Issues
The penalties for any form of cheating or plagiarism are severe and will lead to your failure in this course.
Other Issues
1: Contacts: Please register your correct email when enrolling for this course as this is the main channel we contact each other throughout this course. Please check your email daily when it is possible. Treat these requirements as your own responsibility.
2: Discipline: Show your respect to both the instructor and your peers. Make sure to come to class on time and not leave early. Switch off your mobile or at least keep it quiet during class.