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| Subject: | Finance |
| Views: | 63,801 |
Instructor
Name
John Geanakoplos
Lecture Description
This lecture explains what an economic model is, and why it allows for counterfactual reasoning and often yields paradoxical conclusions. Typically, equilibrium is defined as the solution to a system of simultaneous equations. The most important economic model is that of supply and demand in one market, which was understood to some extent by the ancient Greeks and even by Shakespeare. That model accurately fits the experiment from the last class, as well as many other markets, such as the Paris Bourse, online trading, the commodities pit, and a host of others. The modern theory of general economic equilibrium described in this lecture extends that model to continuous quantities and multiple commodities. It is the bedrock on which we will build the model of financial equilibrium in subsequent lectures.
Reading assignment:
Sharpe, Investments, pp. 85-91
Reading assignment:
Sharpe, Investments, pp. 85-91
Course Index
- Why Finance?
- Utilities, Endowments, and Equilibrium
- Computing Equilibrium
- Efficiency, Assets, and Time
- Present Value Prices and the Real Rate of Interest
- Irving Fisher's Impatience Theory of Interest
- Shakespeare's Merchant of Venice, Collateral. Present Value and the Vocabulary of Finance
- How a Long-Lived Institution Figures an Annual Budget. Yield
- Yield Curve Arbitrage
- Dynamic Present Value
- Social Security
- Overlapping Generations Models of the Economy
- Demography and Asset Pricing: Will the Stock Market Decline when the Baby Boomers Retire?
- Quantifying Uncertainty and Risk
- Uncertainty and the Rational Expectations Hypothesis
- Backward Induction and Optimal Stopping Times
- Callable Bonds and the Mortgage Prepayment Option
- Modeling Mortgage Prepayments and Valuing Mortgages
- History of the Mortgage Market: A Personal Narrative
- Dynamic Hedging
- Dynamic Hedging and Average Life
- Risk Aversion and the Capital Asset Pricing Theorem
- The Mutual Fund Theorem and Covariance Pricing Theorems
- Risk, Return, and Social Security
- The Leverage Cycle and the Subprime Mortgage Crisis
- The Leverage Cycle and Crashes
Course Description
This course attempts to explain the role and the importance of the financial system in the global economy. Rather than separating off the financial world from the rest of the economy, financial equilibrium is studied as an extension of economic equilibrium. The course also gives a picture of the kind of thinking and analysis done by hedge funds.
Course Structure:
This Yale College course, taught on campus twice per week for 75 minutes, was recorded for Open Yale Courses in Fall 2009.
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