Simon Fraser University
Engaging the World

Course Outlines

Fall 2023 - ECON 815 G100

Financial Economics (4)

Class Number: 4085

Delivery Method: In Person

Overview

  • Course Times + Location:

    Sep 6 – Dec 5, 2023: Thu, 12:30–3:20 p.m.
    Burnaby

  • Prerequisites:

    ECON 331.

Description

CALENDAR DESCRIPTION:

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

COURSE DETAILS:

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.

Grading

  • Midterm exam 40%
  • A few problem sets 20%
  • Final exam 40%

Materials

REQUIRED READING:

There is no required textbook for this course. Papers and notes will be posted on the website as we go along.

RECOMMENDED READING:

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.


REQUIRED READING NOTES:

Your personalized Course Material list, including digital and physical textbooks, are available through the SFU Bookstore website by simply entering your Computing ID at: shop.sfu.ca/course-materials/my-personalized-course-materials.

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:

ACADEMIC INTEGRITY: YOUR WORK, YOUR SUCCESS

SFU’s Academic Integrity website 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

RELIGIOUS ACCOMMODATION

Students with a faith background who may need accommodations during the semester are encouraged to assess their needs as soon as possible and review the Multifaith religious accommodations website. The page outlines ways they begin working toward an accommodation and ensure solutions can be reached in a timely fashion.