Econ 815 - Summer 2019

Syllabus

-  Course Description and Outline

Problem Sets

-  Problem Set 1  (Due June 13)
-  Problem Set 2  (Due June 27)

Old Problem Sets and Exams

-  Problem Set 1  (Due October 19)
-  Problem Set 2  (Due November 16)
-  Midterm Exam & Solutions

- Problem Set 1  (Due October 13)
- Problem Set 1  (Solutions)
- Midterm Exam & Solutions
- Midterm Exam & Solutions (2016)
- Problem Set 2
- Problem Set 3  (Due November 26)
- Problem Set 3  (Solutions)
- Final Exam & Solutions
- Final Exam (2016)
- Final Exam (2017)
- Stefanie's Questions & My Answers

Background Reading

Shiller (2014),  "Nobel Prize Lecture: Speculative Asset Prices"

Papers

Continuous-Time Stochastic Processes and Dynamic Optimization

"Stochastic Processes and Ito's Lemma"  -  Chpt. 3 from Investment Under Uncertainty by Dixit and Pindyck.

"Dynamic Optimization under Uncertainty"  -  Chpt. 4 from Investment Under Uncertainty by Dixit and Pindyck.

"Continuous Time Summary/Review"  -  class notes from John Cochrane

Dynamic Spanning, Arrow Securities, and Radner Equilibria

Arrow (1964),  "The Role of Securities in the Optimal Allocation of Risk-Bearing",  Review of Economic Studies

Radner (1972),  "Existence of Equilibrium of Plans, Prices, and Price Expectations in a Sequence of Markets",  Econometrica

"Time, Uncertainty, and the ADM Model" and "The Radner Version of the ADM Model",  from Chpt. 5 of Big Ideas in Macroeconomics by K. Athreya
"Kenneth Arrow's Work on Coping with Risk and Uncertainty"  by M. Yaari

The CAPM Model

Sharpe (1964),  "Capital Asset Prices: A Theory of Market Equilibrium under Conditions of Risk",  Journal of Finance

"The Capital Asset Pricing Model",  Chpt. 7 of Investment Science by David Luenberger

Campbell (2000), "Diversification: A Bigger Free Lunch",  Canadian Investment Review

Campbell (2003),  "Lecture Notes on Diversification and the CAPM",  unpublished notes.

Cochrane (1999),  "Portfolio Advice for a Multifactor World", Economic Perspectives (Chicago Fed)

Dynamic Consumption/Portfolio Rules

Merton (1969),  "Lifetime Portfolio Selection Under Uncertainty: The Continuous-Time Case",  Review of Economics and Statistics

Option Pricing and Derivative Securities

Black and Scholes (1973),  "The Pricing of Options and Corporate Liabilities",  Journal of Political Economy

Black (1989),  "How We Came Up with the Option Formula",  Journal of Portfolio Management

Sutton,  "Some Models That Work",  from the book Marshall's Tendancies: What Can Economists Know

The Consumption-Based CAPM Model

Lucas (1978),  "Asset Prices in an Exchange Economy",  Econometrica
Summers (1985),  "Economics and Finance",  Journal of Finance

Heterogeneous Beliefs

Harrison and Kreps (1978),  "Speculative Investor Behavior in a Stock Market with Heterogeneous Expectations", Quarterley J. of Economics
Scheinkman and Xiong (2003),  "Overconfidence and Speculative Bubbles",  Journal of Political Economy
Kasa, Walker, and Whiteman (2014),  "Heterogeneous Beliefs and Tests of Present Value Models",  Review of Economic Studies

Equivalent Martingale Measures and Risk-Neutral Pricing

Harrison and Kreps (1979),  "Martingales and Arbitrage in Multiperiod Securities Markets",  Journal of Economic Theory
Chapters 14 and 15 from S. Neftci's (1996) book,  Mathematics of Financial Derivatives

Information Revelation and the Grossman-Stiglitz Paradox

Grossman and Stiglitz (1980),  "On the Impossibility of Informationally Efficient Markets",  American Economic Review

Speculation, Common Knowledge, and No-Trade Theorems

Tirole (1982),  "On the Possibility of Speculation under Rational Expectations",  Econometrica

Lecture Slides

Lecture 1
Lecture 2
 Lecture 3
Lecture 4
Lecture 5
Lecture 6
Lecture 7
Lecture 8
Lecture 9
Lecture 10
Lecture 11
Lecture 12
Lecture 13
Lecture 14
Lecture 15
Lecture 16
Lecture 17
Lecture 18
Lecture 19
Lecture 20
Final Exam Topics and Practice Problems