Syllabus academic year 2007/2008

Higher education credits: 7,5. Grading scale: TH. Level: A (Second level). Language of instruction: The course will be given in English. TEK103 overlap following cours/es: NEK721 och NEKM25. Optional for: I4fi, Pi4fm. Course coordinator: Prof. Björn Hansson,, Nationalekonomiska inst. Prerequisites: Basic courses in portfolio selection, option pricing and statistics. Assessment: Students are evaluated in a written exam. In addition, quick quizes during the course give points that are added to the score on the exam. Points from quick quizes are only added to the score on the exam during the same term as the quick quizes were carried out. Further information: Corresponds to NEK721. Home page:

The objective of this course is to give the students an understanding of well known ideas and theories within financial economics.

Knowledge and understanding
For a passing grade the student must

Skills and abilities
For a passing grade the student must

Judgement and approach
For a passing grade the student must

develop an ability to pursue further studies in the field and to seek and evaluate information with a high degree of independence

The course takes up the following building blocks of financial economics

• Investment decision under certainty: Fisher separation.

Expected utility. Risk Aversion and certainty equivalent. The degree of absolute and relative risk aversion. Stochastic Dominance, the MV-criterion and the efficient set.

• Pure securities (Arrow Debreu securities). Complete markets.

• Mean-Variance portfolio theory. Construction of the portfolio frontier. Diversifiable risk.

• Market equilibrium. CAPM, APT and multi factor equilibrium models.

• Pricing contingent claims. Put-Call parity. The binomial approach. Black-Scholes.

• Term structure of interest rates.

• Real option analysis.

• Efficient capital markets. Theory and evidence.

• Information asymmetry and agency theory.

Campbell J & Lo A & MacKinlay A: The Econometrics of Financial Markets, Princeton 1998.
Danthine, J.-P. and J. Donaldson: Intermediate Financial Theory, Prentice-Hall, 2001.
Compendium from lectures.