25864 Finance Theory
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Credit points: 6 cp
Subject level:
Postgraduate
Result type: Grade and marksThere are course requisites for this subject. See access conditions.
Description
This subject introduces students to the major models of asset pricing and to rational expectations models. Three broad categories of asset pricing models are discussed: single-period static models and discrete time intertemporal models; continuous time models; and rational expectations models.
For more information, contact your PhD supervisor.
Content (topics)
The subject consists of three 2 Day Modules which deal with three broad categories of asset pricing models: single-period static models and discrete time intertemporal models (Module 1), continuous time mathematics, Black Scholes and continuous time models (Module 2) and finally rational expectations models: fully revealing equilibrium, noisy rational expectations equilibrium, the Kyle model, its extensions and future directions (Module 3).
The general approach will be:
- to examine the economic intuition behind each model
- provide a mathematically rigorous derivation of the model
- discuss the model's important features, and
- outline the testable implications of the model.
Assessment
Assessment task 1: Assignments (Individual or Group)
| Weight: | 20% |
|---|
Assessment task 2: Assignments (Individual or Group)
| Weight: | 20% |
|---|
Assessment task 3: Final Exam
| Weight: | 60% |
|---|
Recommended texts
There are no required texts for this course.
References
- Huang and Litzenberger, 1988 Foundations for Financial Economics, North-Holland (Elsevier Science Publishing, New York).
- Ingersoll, 1987 Theory of Financial Decision Making, Rowan and Littlefield (Totowa, NJ).
- Cochrane, 2005 Asset Pricing Revised Edition, Princeton University Press.
- O'Hara, 1995 Market Microstructure Theory, Blackwell Publishers, Cambridge Mass.