ECON4510 – Finance Theory
Course description
Schedule, syllabus and examination date
Course content
Topics include
- Absence of systematic arbitrage in competitive financial markets
- Time, money, and interest rates: basics of bond pricing
- Individual decision-making under uncertainty: frameworks to systematically analyze how to allocate resources between a set of projects with risky future payoffs, taking the risk-free rate and market price of risk as given
- Gains from diversification and portfolio choice
- Economies of scale in asset management
- Basics of pricing of derivatives: another application of absence of arbitrage.
- Introduction to equilibrium asset pricing models where the risk-free rate and the market?s discount factor is an (endogenous) equilibrium outcome: challenges jointly accounting for the distributions of macroeconomic quantities and prices in financial markets
Learning outcome
Knowledge
You should know
- how to use arguments based on absence of systematic arbitrage to price financial assets
- the basics of capital budgeting and financing decisions: understand how to analyze and compare future cash flows
- how to improve risk-reward trade-offs by diversification and this can be applied to portfolio choice
- how basic microeconomic concepts such as economics of scale translate to finance and asset management
- the challenges of jointly accounting for the dynamics of macroeconomic quantities and prices in financial markets - and some of the potential resolutions
Skills
You should be able to
- apply absence of arbitrage to real-life situations
- price bonds
- estimate the cost of capital for projects and firms taking the market price of risk as given
- analyze cash flows
- understand the tensions in general-equilibrium models striving to jointly account for prices and quantities
Competence
You should
- be able to read and understand both financial reports and journal articles that make use of the concepts and methods that are introduced in the course
- be able to make use of the course content in your own academic work, for example in analyses that are part of the master’s thesis
- be able to make use of the course content in professional life, either you choose public service or private industry
Admission to the course
Students admitted to study programmes at UiO must each semester register which courses and exams they wish to sign up for in Studentweb.
Students not admitted to the Master’s programme in Economics or the Master’s programme in Economic Theory and Econometrics (Samfunns?konomisk analyse), can apply for admission to one of our study programmes, or apply for guest student status.
Formal prerequisite knowledge
You must fulfill one of these prerequisites:
- Bachelor`s degree in Economics, or equivalent.
- ECON3220 – Microeconomics 3 / ECON4220 – Microeconomics 3, or equivalent.
Recommended previous knowledge
- Students who do not have ECON3120 – Mathematics 2: Calculus and Linear Algebra / ECON4120 – Mathematics 2: Calculus and Linear Algebra or equivalent, are advised not to take this course.
Overlapping courses
- 8 credits overlap with MAT2700 – Introduction to mathematical finance and investment theory (continued).
- 8 credits overlap with STK-MAT3700 – Introduction to Mathematical Finance and Investment Theory.
- 8 credits overlap with STK-MAT4700 – Introduction to Mathematical Finance and Investment Theory.
- 5 credits overlap with ECON4515 – Finance Theory 1: Portfolio choice and equilibrium models (discontinued).
- 5 credits overlap with ECON4520 – Finance Theory 2: Option theory with applications (discontinued).
Teaching
Lectures and seminars.
Examination
A 3-hour written school exam.
You must have passed the mandatory activities in order to sit for the exam.
Exam papers with comments from examiner
Examination support material
Resources allowed: No written or printed resources are allowed, but you can use calculator. There is a digital scientific calculator available in Inspera.
Please note: You are not allowed to bring your own calculator. We strongly advise you to familiarize yourself with the digital calculator here: https://www.desmos.com/scientific
Usage of a dictionary during the examination is allowed, subject to prior inspection by SV-info.?See guidelines for further details.
Language of examination
The examination text is given in English. You may submit your response in Norwegian, Swedish, Danish or English.
Grading scale
Grades are awarded on a scale from A to F, where A is the best grade and F is a fail. Read more about the grading system.
Resit an examination
If you are sick or have another valid reason for not attending the regular exam, we offer a postponed exam later in the same semester.
See also our information about resitting an exam.
More about examinations at UiO
- Use of sources and citations
- Special exam arrangements due to individual needs
- Withdrawal from an exam
- Illness at exams / postponed exams
- Explanation of grades and appeals
- Resitting an exam
- Cheating/attempted cheating
You will find further guides and resources at the web page on examinations at UiO.