Financial Theory

Explore the fundamental role and importance of the financial system in the global economy through this comprehensive economics course from Yale University. Learn to understand financial equilibrium as an extension of economic equilibrium rather than as a separate entity, while gaining insights into the analytical thinking employed by hedge funds. Master key concepts including utilities, endowments, and equilibrium computation, before progressing to efficiency, assets, and time value principles. Delve into Irving Fisher's impatience theory of interest and examine present value pricing through classical examples like Shakespeare's Merchant of Venice. Analyze yield curves, dynamic present value calculations, and social security systems within overlapping generations economic models. Investigate demographic impacts on asset pricing, including potential stock market effects from baby boomer retirement. Develop skills in quantifying uncertainty and risk, applying rational expectations hypothesis, and utilizing backward induction for optimal stopping times. Study callable bonds, mortgage prepayment options, and mortgage valuation models while exploring the historical evolution of mortgage markets. Master dynamic hedging techniques, risk aversion principles, and the Capital Asset Pricing Theorem. Examine mutual fund theorems, covariance pricing models, and the relationship between risk, return, and social security. Conclude with an in-depth analysis of the leverage cycle and its role in financial crises, including the subprime mortgage crisis and market crashes.