Fall 2020 - ECON 815 G100

Financial Economics (4)

Class Number: 2460

Delivery Method: In Person


  • Course Times + Location:

    Sep 9 – Dec 8, 2020: Wed, 1:30–2:20 p.m.

    Sep 9 – Dec 8, 2020: Fri, 12:30–2:20 p.m.

  • Prerequisites:

    ECON 331.



An introduction to the theory and practice of finance including topics from asset pricing, portfolio theory, and corporate finance. Offered once a year.


This course is one of a two course sequence in financial economics. The goal is to survey a variety of topics in asset pricing theory. The related course by Bertille Antoine (Econ 818), will focus on empirical issues. Financial economics provides a great example of the interaction between theory and empirical evidence. The goal of these two courses is to illustrate this.

My goal is to discuss 9 key ideas in asset pricing theory; roughly one per week. Students will be asked to read the following 9 papers: (1) Arrow’s (RES, 1964) model of dynamic spanning, (2) Sharpe’s (JF, 1964) CAPM model, (3) Merton’s (JET, 1971) dynamic partial equilibrium model of optimal consumption/portfolio decisions, (4) Black & Scholes (JPE, 1973) option pricing model, (5) Lucas’s (Ecma, 1978) general equilibrium consumption-based CAPM model, (6) Harrison & Kreps’ (QJE, 1978) model of speculative trading with heterogeneous beliefs, (7) Harrison & Kreps’ (JET, 1979) theory of risk-neutral pricing and equivalent martingale measures, (8) Grossman & Stiglitz’ (AER, 1980) informational efficiency impossibility theorem , and (9) Tirole’s (Ecma, 1982) No Trade theorem. Although these papers may appear to be a bit “dated”, they continue to exert a profound influence on modern financial theory and practice. If time permits, we will discuss some of these recent extensions.

Much of modern financial theory uses the tools of continuous-time stochastic processes and continuous-time dynamic optimization. The first couple weeks of the course will provide a `crash course’ tutorial on these methods.


  • Final exam 40%
  • Midterm exam 40%
  • Problem sets 20%



There is no required textbook for this course. Papers and notes will be posted on the website as we go along. For those seeking a good textbook treatment of modern asset pricing, I recommend John Cochrane’s (2005) book, Asset Pricing, which is available at the bookstore and on reserve at the library.

Graduate Studies Notes:

Important dates and deadlines for graduate students are found here: http://www.sfu.ca/dean-gradstudies/current/important_dates/guidelines.html. The deadline to drop a course with a 100% refund is the end of week 2. The deadline to drop with no notation on your transcript is the end of week 3.

Registrar Notes:


SFU’s Academic Integrity web site http://www.sfu.ca/students/academicintegrity.html is filled with information on what is meant by academic dishonesty, where you can find resources to help with your studies and the consequences of cheating.  Check out the site for more information and videos that help explain the issues in plain English.

Each student is responsible for his or her conduct as it affects the University community.  Academic dishonesty, in whatever form, is ultimately destructive of the values of the University. Furthermore, it is unfair and discouraging to the majority of students who pursue their studies honestly. Scholarly integrity is required of all members of the University. http://www.sfu.ca/policies/gazette/student/s10-01.html


Teaching at SFU in fall 2020 will be conducted primarily through remote methods. There will be in-person course components in a few exceptional cases where this is fundamental to the educational goals of the course. Such course components will be clearly identified at registration, as will course components that will be “live” (synchronous) vs. at your own pace (asynchronous). Enrollment acknowledges that remote study may entail different modes of learning, interaction with your instructor, and ways of getting feedback on your work than may be the case for in-person classes. To ensure you can access all course materials, we recommend you have access to a computer with a microphone and camera, and the internet. In some cases your instructor may use Zoom or other means requiring a camera and microphone to invigilate exams. If proctoring software will be used, this will be confirmed in the first week of class.

Students with hidden or visible disabilities who believe they may need class or exam accommodations, including in the current context of remote learning, are encouraged to register with the SFU Centre for Accessible Learning (caladmin@sfu.ca or 778-782-3112).