Financial Economics

obligatory courses

Classroom

The main goal of the course is to understand the determinants of the financial market activity in the context of economic theories. The program extends the scope of the subject Theory of Financial Markets. The course discusses: economic theories, behavior of financial markets, modeling the behavior of financial markets.

LECTURE

Basic concepts of financial economics

Equilibrium on the financial market (stock market, agent theory, consumption and selection portfolio, priority conditions, general equilibrium, existence and invariance of equilibrium, models of representative agents)

Basic models and tests on financial markets

Prediction of rates of stock prices

Linear prices and the functioning of returns, linear equilibrium, prices on regulated markets, optimization problem

Arbitrage and strong arbitrage, diagram representation, cost function, arbitrage and optimal portfolios, balance valuation

Portfolio restrictions (short selling restrictions, portfolio selection under short selling restrictions, one price right, limited and unlimited arbitration, equilibrium rate)

Volatility and equilibrium theory, prices and neutral risk, portfolio volatility and limitations

Risk and expected utility, von Neumann-Morgenstern theory, utility axioms in state control conditions, expected utility axioms

Risk aversion and risk neutrality, Arrow-Pratt measures of risk aversion, risk compensation, Pratt theory, risk aversion

Optimal portfolios (portfolio selection and wealth, optimal single-risk portfolios, risk premium and optimal portfolios, optimal portfolios when the risk premium is low)

Comparative statistics of optimal portfolios (wealth, unexpected returns, risk)

Optimal portfolios taking into account several risks (return on risk, optimal portfolios under fair valuation conditions, risk premium and optimal portfolios, optimal portfolios within line risk tolerance)

Equilibrium price and allocation (returns at equilibrium, expected returns at equilibrium, variability of marginal returns)

Competitive markets and Pareto risk allocation balance

Analysis of variance

Factor valuation (valuation errors, average structure valuation)

Long-term forward markets (imbalance on long-term financial markets, imbalance and information, asset range, first equilibrium condition, arbitration, dynamic markets, event analysis, Pareto equilibrium)

Rational bubbles and learning

Behavioral and anomalously market finances

Models of market behavior

EH testing theory

Affine and SDF models

CIP, UIP and FRU testing

Investments and bankruptcy theory

ESG as a new factor of financial risk

EXERCISES

Financial economics basic concepts

Modeling of financial markets (normality tests, random walk, cointegration, monte carlo simulation)

EMH testing

Prediction of stock prices using residual tests, ECM, non-nonlinear models, Markov models

Building balance under rope prices

Arbitrage and valuation

Modeling under portfolio constraints

Risk modeling when making investment decisions

Risk aversion

Optimal portfolios

Comparative statistics of optimal portfolios

Optimal portfolios taking into account several risks

Balance price and allocation

Competitive markets and Pareto risk allocation balance

Analysis of variance

Factor valuation

Long-term forward markets

Rational bubbles and learning

Models of market behavior

EH testing theory

Affine and SDF models

CIP, UIP and FRU testing

Modeling bankruptcy risk

Patrycja Chodnicka-Jaworska, Piotr Jaworski, Wrażliwość rynku akcji na publikacje danych rynkowych w czasie pandemii COVID-19, Wydawnictwo Naukowe Wydziału Zarządzania UW, 2020;

Patrycja Chodnicka-Jaworska, Credit rating na rynku finansowym, PWE, 2019;

Krzysztof Jajuga, Teresa Jajuga, Inwestycje, PWN, 2015;

Stephen F. LeRoy, Jan Werner, Principles of Financial Economics, Cambridge University Press 2 edition, 2014;

Keith Cuthbertson, Dirk Nitzsche, Quantitative Financial Economics: Stocks, Bonds and Foreign Exchange, 2nd Edition, Wiley, 2004.

After completing the course (lecture and classes), the student:

- knows and understands:

• K_W01 - in-depth research methodology and terminology in the field of management and quality science discipline and in complementary disciplines (economics and finance), in particular in the area of financial management and accounting;

• K_W02 - in-depth principles, procedures and practices regarding financial management in organizations, accounting, management of financial institutions and strategies of financial institutions;

• K_W03 - in-depth theories and economic models regarding the functioning of organizations in the entire economy;

• K_W05 - complex processes and technological, social, political, legal, economic processes and their impact on financial decisions in organizations, the functioning of the organization and the entire economy;

- can:

• K_U01 - use the theories of the discipline of management and quality science and complementary sciences (economics and finance) to recognize, diagnose and solve problems related to financial decisions in the organization and management of financial institutions, using appropriate selection of sources and adapting existing or developing new methods;

• K_U02 - correctly interpret assumed economic processes and their impact on financial decisions in organizations, the functioning of the organization and the entire economy, using the appropriate selection of sources;

- is ready to:

• K_K01 - assessment of a critical approach to complex situations and phenomena related to financial management in organizations, accounting, management of financial institutions and strategies of financial institutions;

• K_K03 - to comply with and develop ethical standards.

Lecture: Written exam (test, open questions, tasks)

Exercises: ongoing assessment (current preparation for classes and activity), mid-semester written tests, attendance control, semester work. The necessary condition to pass the exercises is to submit the project.

Learning outcomes will be verified on an ongoing basis by means of tasks performed by participants during the exercises and finally by passing the exercises (test) and the exam.

Lecture:

• written exam (100% mark)

• very good grade in exercises (20% of the grade)

• additional points for activity 10%

Exercises:

• 10% work in classes,

• 70% group project;

• 20% final test