Course Details
Subject {L-T-P / C} : HS7405 : Financial Economics { 3-0-0 / 3}
Subject Nature : Theory
Coordinator : Dr. Narayan Sethi
Syllabus
1. Markets, Models, Interest rates, Utility Maximization, Risk
• Financial Markets, Interest Rates
• Models of Securities Prices
• Optimal Consumption/Portfolio Strategies
• Risk
2. Pricing and Hedging of Derivative Securities
• Arbitrage and Risk-Neutral Pricing
• Option Pricing
• Fixed-Income Market Models and Derivatives
• Hedging
• Bond Hedging
• Numerical Models
3. Equilibrium Models
• Equilibrium fundamentals
• CAPM
• Multifactor Models
• Other Pure Exchange Equilibria
4. Behavioral Finance Theory
• Standard Finance vs. Behavioral Finance
• Prospect Theory and Investor Psychology
• Empirical Evidence
5. Theory of Financial Intermediation
• Financial Intermediaries in the Neoclassical model
• Why do Financial Intermediaries exist?
• Empirical Evidence
6. Theory of the Banking Firm
• Objectives of a Banking Firm
• Theory of Deposit Contracts
• Credit Risk and Risk Measurement
• Regulation in Banking
7. Market Microstructure Theory
• Trading Mechanisms and the Design of Exchanges
• Autocorrelation in Security Prices
• Sequential Models and Strategic Models
• Regulation of Exchanges
Course Objectives
- This core course will familiarize the students with the foundations of modern finance.
Course Outcomes
The students will be able to explore the dominant theoretical paradigms, as well as learn about empirical research in financial market, pricing and equilibrium.
Essential Reading
- A. Craigmackinlay, The Econometrics of Financial Markets, New Age International (P) Limited , 2007
- Pathak Bharti, Indian Financial System, Pearson Education , 5th Edition, 2018
Supplementary Reading
- John C. Hull, Sankarshan Basu, Options, Futures, and Other Derivatives, Pearson Education India , 9th Edition, 2016
- Martin J. Gruber, Stephen J. Brown, William N. Goetzmann Edwin J. Elton, Modern Portfolio Theory and Investment Analysis, Wiley , 8th Edition