Asset pricing and financial contracts

A.A. 2019/2020
Insegnamento per
Crediti massimi
Ore totali
Obiettivi formativi
The first part of the course aims to provide a good knowledge of the core principles and topics of modern asset pricing theory. It presents key concepts, relations, and models of asset pricing to develop a sound understanding of the pricing of financial assets under realistic conditions of a multiperiod stochastic environment with incomplete markets. The Asset Pricing module covers various theories from the Stochastic Discount Factor Theory to the Consumption Capital Asset Pricing Model and discusses practical issues such as the equity premium puzzle. The second part of the course aims to provide the students with the basic principles of modern contract theory. The main concepts are discussed within a unified framework. After having introduced the basic model of symmetric information, the case of asymmetric information is discussed, in relation with the problems of moral hazard, adverse selection and signaling. The analytical tools developed are then used to analyze issues related to credit and insurance markets.

Struttura insegnamento e programma

Edizione attiva
Moduli o unità didattiche
Module Asset Pricing
Lezioni: 40 ore

Module Financial Contracts
Lezioni: 40 ore
Docente: Colombo Stefano

Informazioni sul programma
The course is in two parts: Financial Contracts and Asset Pricing. Please see the corresponding programs
Decision Theory and Behavioural Economics
Prerequisiti e modalità di esame
For the Financial Contracts model: Written exam (approximately 1 hour). The exam covers all the topics presented during lectures and it consists of a series of questions and exercises. The exam aims to verify that the course objectives have been achieved, that is: students have learnt the economic intuition of the models presented in the lectures and are able to apply the key concepts to practical cases.

For the Asset Pricing module: Written exam (approximately 1 hour and 30 minutes). The exam covers all the topics presented during lectures and it consists of a series of open-ended questions which may include calculations and/or explanation and/or technical analysis. The exam aims to verify that the course objectives have been achieved; i.e. that students have learned the theory, and know how to use it to explain price differences between different assets, and their determinants.
Module Asset Pricing
List of Topics
1. Equilibrium asset pricing; an introduction
2. The risk premium; risk aversion and return distribution
3. The Euler Equation and the Stochastic Discount Factor
4. Complete Markets; the pricing of Contingent Claims
5. Mean Variance Frontier and Beta Representations
6. The Capital Asset Pricing Model (CAPM)
7. The Consumption-Based CAPM
8. The Arbitrage Pricing Theory
9. Sovereign bond spreads and the default premium
10. The Equity Premium Puzzle
Metodi didattici
Lectures. Power point presentations will be available on the Ariel website.
Materiale didattico e bibliografia
Textbook: Jhon H. Cochrane, Asset Pricing. Revised edition, Princeton University Press, 2005. Chapters: 1, 2, 3, 4, 5, 6, 7, 8, 9, 21.
Other references
Introductory: Jean-Pierre Danthine John Donaldson, Intermediate Financial Theory, third edition, Elsevier, 2014.
Advanced: Chi-Fu Huang and Robert H. Litzenberger, Foundations for Financial Economics, Prentice Hall (Elsevier Science Ltd.), 1988. Chapters: 5, 6, 7.
Stanley R. Pliska, Introduction to Mathematical Finance, Blackwell, 1997. Chapter 1.
Module Financial Contracts
Part I): Theory
- The principal-agent model.
- Contractual design under perfect information.
- Contractual design under imperfect information (I): moral-hazard.
- Contractual design under imperfect information (II): adverse selection.
- Contracts and signaling.
Part II) Applications
- Insurance.
- The lender-borrower relationship.
- Financial intermediation.
- Banks as delegated monitors.
- Credit rationing and the role of collateral;
Metodi didattici
Materiale didattico e bibliografia
I. MACHO-STADLER-J.D. PÉREZ-CASTRILLO, An Introduction to the Economics of Information: Incentives and Contracts, Oxford University Press, last edition.
II. X. FREIXAS-J.C. ROCHET, Microeconomics of banking, MIT Press, 2008 (second edition).
Primo trimestre
Primo trimestre
Modalità di valutazione
Giudizio di valutazione
voto verbalizzato in trentesimi
Ricevimento: Martedì ore 14.00-16.00
DEMM, via Conservatorio 7, stanza 5 secondo piano