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Macro Finance

  • Teacher(s):   P.St-Amour  
  • Course given in: English
  • ECTS Credits: 3 credits
  • Schedule: Autumn Semester 2019-2020, 2.0h. course (weekly average)
  •  sessions
  • site web du cours course website
  • Related programme: Master of Science (MSc) in Economics

 

Objectives

Macro Finance is taught in English and is opened to both second-year MScE and MScF students (other students may be admitted with instructor's consent). This Financial Economics course has two objectives. On the one hand it aims at providing more Economics-oriented students with graduate level Asset pricing tools, such as contingent claims pricing, no-arbitrage factor pricing or consumption-based equilibrium valuations. On the other, it also aims at providing more Finance-oriented students with graduate level Macro tools such as investment theory, production-based pricing, or money demand models. Finally, topics of interest to both groups such as incomplete markets pricing, or frictions will also be discussed.

Contents

1- Complete contingent claims (Altug and Labadie, 2008, ch. 1), (Cochrane, 2005, ch. 3), (Danthine and Donaldson, 2005, ch. 8).

  • Static security market equilibrium.
  • Optimality and representative consumer

2- Arbitrage and asset valuation (Altug and Labadie, 2008, ch. 2), (Cochrane, 2005, ch. 4), (Danthine and Donaldson, 2005, ch. 10)

  • Absence of arbitrage.
  • Existence of state-price vector.
  • Binomial security markets

3- CAPM and APT (Altug and Labadie, 2008, ch. 4), (Cochrane, 2005, ch. 9), (Danthine and Donaldson, 2005, chs. 7, 13)

  • Capital Asset Pricing Model.
  • Arbitrage Pricing Theory 2.

4- Consumption and savings (Altug and Labadie, 2008, ch. 5)

  • Deterministic economy.
  • Portfolio choices.
  • Random walks.
  • Permanent income.
  • Precautionary savings.

5- Inter-temporal risk sharing* (Altug and Labadie, 2008, ch. 7), (Cochrane, 2005, ch. 9), (Ljungvist and Sargent, 2004, ch. 8), (Danthine and Donaldson, 2005, ch. 10).

  • Multi-period contingent claims.
  • Idiosyncratic endowment risk.
  • Risk sharing with idiosyncratic and aggregate risk.

6- Consumption and asset pricing (Altug and Labadie, 2008, ch. 8), (Cochrane, 2005, ch. 21), (Ljungvist and Sargent, 2004, ch. 13), (Danthine and Donaldson, 2005, ch. 9).

  • Consumption-based CAPM.
  • Pricing alternative assets.
  • Growth and cointegration.

7- Economies with production (Altug and Labadie, 2008, ch. 10).

  • Recursive competitive equilibrium with production.
  • Extensions: Distortions and expectations.
  • Solving production models.
  • Financial structure

8- Investment theory (Altug and Labadie, 2008, ch. 11)

  • Neoclassical theory of investment.
  • Q theory with adjustment costs.
  • Irreversibility and asset prices.

9- Cash-in-advance* (Altug and Labadie, 2008, ch. 13).

  • Basic CIA model.
  • Inflation and interest rates.
  • Transactions services (MIU).
  • Growth.
  • Real impacts of money.

10- Asset pricing with frictions* (Altug and Labadie, 2008, ch. 15), (Ljungvist and Sargent, 2004, ch. 17).

  • Role of idiosyncratic risks.
  • Transaction costs

11- Borrowing constraints* (Altug and Labadie, 2008, ch. 16).

  • Idiosyncratic risk and borrowing constraints.
  • Turnpike model (Townsend)

*: If time permits

References

  • Altug, Sumru, and Pamela Labadie (2008) Asset Pricing for Dynamic Economies (Cambridge, UK: Cambridge University Press)
  • Cochrane, John H. (2005) Asset Pricing, revised ed. (Princeton, NJ and Oxford, UK: Princeton University Press)
  • Danthine, Jean-Pierre, and John Donaldson (2005) Intermediate Financial Theory Advanced Finance Series, 2 ed. (Burlington, MA: Elsevier Academic Press)
  • Ljungvist, Lars, and Thomas J. Sargent (2004) Recursive Macroeconomic Theory, 2 ed. (Cambridge, Massachussetts; London, England: MIT Press)

Pre-requisites

Having completed 60 credits of MScE, or MScF programs, or with Instructor's consent

Evaluation

First attempt

Exam:
Written 2h00 hours
Documentation:
Not allowed
Calculator:
Not allowed
Evaluation:

Final exam, 100% of final grade.

Retake

Exam:
Written 2h00 hours
Documentation:
Not allowed
Calculator:
Not allowed
Evaluation:

In the event where a makeup exam would be required, only the grade from this exam will be used to compute the final grade.



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