Financial Economics, Advanced Course
Finansiell ekonomi, avancerad kurs

EXTQ25, 7.5 credits, A (Second Cycle)

Valid for: 2025/26
Faculty: Faculty of Engineering LTH
Decided by: PLED I
Date of Decision: 2025-03-28
Effective: 2025-05-05

General Information

Depth of study relative to the degree requirements: Second cycle, in-depth level of the course cannot be classified
Elective for: F5, I4, Pi5-fm
Language of instruction: The course will be given in English

Aim

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

Learning outcomes

Knowledge and understanding
For a passing grade the student must

• Students shall have developed a knowledge and understanding for well known ideas and theories within financial economics. More specifically, students shall be able to understand the construction of the notion of expected utility,
• understand the difference between complete and incomplete markets,
• understand the difference between diversifiable and non-diversifiable risk within a portfolio context,
• understand the derivation of CAPM,
• understand the role of arbitrage in the price determination of derivatives,
• understand the role of options in calculating net present values of investments,
• understand the role of information in price determination.

Competences and skills
For a passing grade the student must

• Students shall have the ability to independently apply their knowledge to real world problems. In particular they shall be able to: calculate the risk premium, the certainty equivalent, absolute and relative risk aversion, prudence and temperance,
• be able to calculate state prices,
• be able to apply CAPM in equilibrium pricing,
• be able to price derivatives,
• be able to price real options,
• be able to analyse finance-related problems in the real-world and to incorporate adequate methods and theories to analyse these problems,
• be able to present a clear and pedagogical report of their own and others' empirical analyses. Students shall also have sufficient competence to independently write a paper at the master level.

Judgement and approach
For a passing grade the student must

• Students shall have the ability to pursue further studies in finance and economics, and to independently search for and evaluate information from the finance literature.

Contents

The course contains the following building blocks

• investment decision under certainty: the risk free rate and Fisher-separability,
• risk aversion and expected utility,
• Arrow-Debreu securities,
• portfolio theory,
• market equilibrium: CAPM and multi-factor equilibrium models,
• derivatives,
• term structure of the interest rates,
• real options,
• efficient markets,
• information asymmetry and agent theory.

Examination details

Grading scale: TH - (U, 3, 4, 5) - (Fail, Three, Four, Five)
Assessment: The examination consists of a written exam and home assignments. The written exam takes place at the end of the course. There will be further opportunities for examination close to this date. Points earned on home assignments are valid for exams taken in the current term.

The examiner, in consultation with Disability Support Services, may deviate from the regular form of examination in order to provide a permanently disabled student with a form of examination equivalent to that of a student without a disability.

Modules
Code: 0117. Name: Financial Economics.
Credits: 7.5. Grading scale: TH - (U, 3, 4, 5).

Admission

Admission requirements:

• At least 4.5 credits (hp) in FMS012 Mathematical Statistics, Basic Course or FMSF45 Mathematical Statistics, Basic Course or FMSF80 Mathematical Statistics, Basic Course or equivalent.
• (EXTA40 Introduction to Microeconomic Theory or EXTA95 Economics: Intermediate Microeconomic Analysis)
  and
  EXTF45 Financial Management

Reading list

• Danthine, Jean-Pierre and John B. Donaldson: Intermediate Financial Theory, third edition. Elsevier, 2014.
• Supplementary material.

Contact

Course coordinator: Thomas Fischer, thomas.fischer@nek.lu.se
Course homepage: https://www.nek.lu.se

Further information