04/11/2016

Open Yale Courses | Financial Theory

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ECON 251: FINANCIAL THEORY (#OVERVIEW)

SYLLABUS(#SYLLABUS)

SESSIONS(#SESSIONS)

SURVEY(#SURVEY)

BUYBOOKS(#BOOKS)

Syllabus
Professor
JohnGeanakoplos,JamesTobinProfessorofEconomics

Description
Thiscourseattemptstoexplaintheroleandtheimportanceofthefinancialsystemintheglobaleconomy.
Ratherthanseparatingoffthefinancialworldfromtherestoftheeconomy,financialequilibriumisstudied
asanextensionofeconomicequilibrium.Thecoursealsogivesapictureofthekindofthinkingand
analysisdonebyhedgefunds.

Texts
Bodie,Zvi,andRobertC.Merton.Finance,UpperSaddleRiver,NewJersey:PrenticeHall,2000.
Chance,DonM.AnIntroductiontoDerivatives,3rdedition,FortWorth,Texas:TheDrydenPress,Harcourt
BraceCollegePublishers,1995.
DeGroot,MorrisH.ProbabilityandStatistics,Reading,Massachusetts:AddisonWesleyPublishingCo.,
1975.
Elton,EdwinJ.andMartinJ.Gruber.ModernPortfolioTheoryandInvestmentAnalysis,5thedition,New
York:JohnWiley&Sons,Inc.,1995.
Fabozzi,Frank.HandbookofMortgageBackedSecurities,6thedition,NewYork:McGrawHill,2001.
Fabozzi,FrankJ.HandbookofFixedIncomeSecurities,6thedition,NewYork:McGrawHill,2000.
Hull,JohnC.Options,Futures,andOtherDerivatives,5thedition,UpperSaddleRiver,NewJersey:
PrenticeHall,2002.
http://oyc.yale.edu/economics/econ-251#syllabus

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Open Yale Courses | Financial Theory

Jarrow,RobertandStuartTurnbull.DerivativeSecurities,2ndedition,Cincinatti,Ohio:SouthWestern
CollegePublishing,2000.
Luenberger,DavidG.InvestmentScience,NewYork:OxfordUniversityPress,1998.
Malkiel,Burton.ARandomWalkDownWallStreet,NewYork:W.W.Norton,1999.
Pliska,StanleyR.IntroductiontoMathematicalFinance.DiscreteTimeModels,Malden,Massachusetts:
BlackwellPublishers,1997.
Ross,Stephen,RandolphWesterfield,andJeffreyJaffe.CorporateFinance,NewYork:Irwin,McGrawHill,
1999.
Sharpe,WilliamF.,GordonJ.Alexander,andJefferyV.Bailey.Investments,6thedition,UpperSaddle
River,NJ:PrenticeHall,1999.
Swensen,DavidF.PioneeringPortfolioManagement.AnUnconventionalApproachtoInstitutional
Investment,NewYork:TheFreePress,2000.
Taggart,Jr,RobertA.QuantitativeAnalysisforInvestmentManagement,UpperSaddleRiver,NewJersey:
PrenticeHall,1996.
Tobin,JameswithStephenGolub.Money,Credit,andCapital,Boston:IrwinMcGrawHill,1998.

Requirements
Mathinthecourse
Financeisaquantitativesubjectthatcanonlybeunderstoodbysolvingconcreteproblems.Butituses
mostlyelementarymathematics.Youneedtobegoodatarithmetic(thedistributivelawisthebasisfor
doubleentrybookkeeping),andbeabletosolvetwoorthreesimultaneouslinearequations(x+y=10x
y=4.Solveforxandy).Youmustalsobeabletodifferentiatethreeelementaryfunctions:dxn/dx
=nxn1dlnx/dx=1/xdeax/dx=aeax.Thefunctionsloganditsinverseexponentialbaseeareso
importanttofinancebecauseofcontinuouscompoundingofinterest.Thoughtheymaybethemost
importantfunctionsinallofmathematics,theywerediscoveredbybankers.Youwillalsobetaughthowto
useExcel.
Coursereading
Thetextbookreadingsaremeanttoclarifyorelaboratematerialpresentedinclass,ortogiveyouanidea
ofalternativepresentationsofthesamematerial.Forexample,wemightdiscussbonds,howtheypay,and
howtovaluethem.Thereadingsmightcoverthespecificsofparticularbondmarkets(local,state,different
countries),howtheyaretaxedetc.Thereisnoofficialtextbook.InthepastIhaveusedCorporateFinance,
byformerYaleprofessorSteveRossandtwocoauthors,andtwoothers,bySharpeandMerton,both
NobelPrizewinnersineconomics(forcontributionstofinancialeconomics).Theirbookswereregardedas
insufficientlyquantitative,butmightbeusefultobrowsein.AnotherverygoodbookisbyLuenberger,but
http://oyc.yale.edu/economics/econ-251#syllabus

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Open Yale Courses | Financial Theory

itisalittletooadvancedforthiscourse.Ihavelistedadozenorsogoodalternativesandsupplements,to
giveyouanideaofwhereyoucouldreadmoreifyoubecomeinterested.Noneoftheseisrequired.You
shouldbeabletofollowthecoursesimplybyattendingthelectures,readingthewebnotes,anddoingthe
problemsets.

Grading
Problemsets:20%
Midtermexam1:20%
Midtermexam2:20%
FinalExam:40%

http://oyc.yale.edu/economics/econ-251#syllabus

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