Finance ‧ Financial Economics

東京国際大学 (TIU, advanced undergraduate: Finance) Spring 2019 – 2021

政策研究大学院大学 (GRIPS, graduate: Financial Economics) Spring 2020 – 2021

Finance, in general, is applied in practice towards a better society. This course gives a sense of the financial theory which conveys what wonderful things can happen, and how people can let their creativity and goals become reality. In addition, this course covers financial econometrics and characteristics of financial data. Typical topics include risk, diversification, stocks, options, volatility modeling, asset pricing models and etc.

Students will be exposed to an integrated course that would introduce the full range of topics typically covered in finance. Those topics concentrate on a large set of issues and concepts to which any finance practitioner should be exposed.

Syllabus

1. A helicopter tour of financial markets and their empirical analysis – Take 1
2. A helicopter tour of financial markets and their empirical analysis – Take 2
3. On the role of financial markets and institutions: risk and diversification
4. Overview of asset pricing approaches
5. Options and the binomial option pricing model
6. Options and the Black-Scholes option pricing model
7. Group presentation: Do option markets undo restrictions on short sales? Evidence from the 2008 short-sale ban (Journal of Financial Economics, 2012)
8. The challenges of asset pricing – a road map: risk premium and stylized facts
9. The demand of financial assets: the expected utility, risk aversion, and behavioral finance
10. CAPM
11. CAPM – rigorously revisited
12. Fama-French factors
13. Econometric background – linear regression
14. Econometric background – time series
15. Return predictability and the efficient markets hypothesis
16. Robust tests and tests of nonlinear predictability of returns
17. Group presentation: Does academic research destroy stock return predictability? (Journal of Finance, 2015)
18. Group presentation: Empirical asset pricing via machine learning (Review of Financial Studies, 2020)
19. Multifactor pricing models
20. Volatility
21. Volatility (continued)
22. Group presentation: Taming the factor zoo – a test of new factors (Journal of Finance, 2020)
23. Dynamic programming
24. Intertemporal equilibrium pricing
25. GMM
26. Risk management and tail estimation
27. Group presentation: Anticipating correlations – a new paradigm for risk management (Robert Engle, 2009) [Robert Engle is the winner of the 2003 Nobel prize in economics]
28. Continuous time process and stochastic integrals
29. (Continuous-time) Option pricing theory and its applications (Cox and Huang 1987, MIT Sloan) 
30. Take-home final examination 

Evaluation Components

• Class evaluation: participating in classroom discussions (20%)
• Group presentation (40%)
• Take-home final exam (40%)

Textbooks

Linton, Oliver. 2019. Financial Econometrics –  Models and Methods, Cambridge University Press.

Berk and DeMarzo. 2017. Corporate Finance, 4th edition, Pearson.

Other Readings 

Jean Tirole (2017, Chapters 11 and 12), Economics for the Common Good, Princeton University Press. Tirole is the winner of the 2014 Nobel Prize in Economics.