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TOPICS IN MATHEMATICAL FINANCE

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TOPICS IN MATHEMATICAL FINANCE

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Academic year 2022/2023

Course ID
SEM0145
Teacher
Elisa Luciano (Lecturer)
Degree course
Finance
Insurance and Statistics
Year
2nd year
Teaching period
First semester
Type
Elective
Credits/Recognition
6
Course disciplinary sector (SSD)
SECS-S/06 - metodi matematici dell'economia e delle scienze att. e finanz.
Delivery
Formal authority
Language
English
Attendance
Optional
Type of examination
Written and oral
Type of learning unit
corso
Prerequisites
Math for Finance
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Sommario del corso

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Course objectives

 

Investors belong to different groups, both in terms of access to markets, or wealth, or tastes and beliefs. They trade in markets that operate with frictions and behave differently. Traditional asset pricing models with a representative agent do not do easily justice of this heterogeneity.
    This course examines models and applications of financial markets with different types of heterogeneity:
    - in access to assets
    - in wealth and roles (intermediaries or institutional investors vs households)
    - in beliefs and expectations

    - in sophistication, ability, constraints, and incentives
    - in ESG preferences
    These features permit to investigate the role of groups of investors, to cope with some empirical asset pricing puzzles and to understand the mixed evidence on specific, although increasingly important, assets (ESG ones, for instance).




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Results of learning outcomes

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Program

 The course will be taught by Elisa Luciano and Fabio Moneta (U. Ottawa, Telfer School of Management). The material consists of original articles. Assignments will be given and will be graded as part of the final exam.
   
    Review of notions & mathematical rules: own material


    Part1
    Markets with intermediaries/restricted participation, i.e. Macro, Money & Finance


    Brunnermeier, M., and Sannikov, Y.,  Macro, Money & Finance, wp, 2016, selected sections
    He, Z.  and Krishnamurthy, A.,  Intermediary Asset Pricing and the Financial Crisis, Annual Reviews of Financial Economics,  2018, 10,  pp. 173-97

Basak, S. and Cuoco,D., An Equilibrium Model with Restricted Stock  Market Participation, The Review of Financial Studies, 1998, 11 (2), pp. 309-341.   

 


    Part 2
    Markets with heterogeneous expectations
    Heterogeneity in opinions: what do we know?
    Financial market models with difference of opinions
    Portfolio choice


    Panageas, S., The Implications of Heterogeneity and Inequality for Asset Pricing”, Foundations and Trends in Finance: Vol. 12, No. 3, pp. 199–275. DOI: 10.1561/0500000057, sections 2.1.1 to 2.1.4
  

    Part 3

Anomalies and mispricing

Limits to arbitrage

Smart money vs. dumb money

Incentives and risk-taking behavior

Short term vs. long term investors

 

Shleifer and Vishny, JF 1997, The limits of arbitrage

Fama and French, JF 2008, Dissecting Anomalies

Stein, Jeremy C. JF 2009, "Presidential address: Sophisticated investors and market efficiency."

Frazzini A, Pedersen LH. Betting against beta. Journal of Financial Economics. 2014 Jan 1;111(1):1-25.

Akbas F, Armstrong WJ, Sorescu S, Subrahmanyam A. Smart money, dumb money, and capital market anomalies. Journal of Financial Economics. 2015 Nov 1;118(2):355-82.

Calluzzo, Moneta, and Topaloglu, MS 2019, When anomalies are publicized broadly, do institutions trade accordingly?

 Goetzmann WN, Ingersoll Jr JE, Ross SA. JF 2003 High‐water marks and hedge fund management contracts.

Yan X, Zhang Z. Institutional investors and equity returns: are short-term institutions better informed?. The Review of Financial Studies. 2009 Feb 1;22(2):893-924.

 

 

    Part 4
        Markets with ESG assets: theoretical framework
    ESG risks and factors
    Portfolio choice
    Equilibrium and empirical evidence

Performance evaluation and evidence on ESG mutual funds


   
    Pastor, L., Stambaugh, R.F., and L.A. Taylor,  Sustainable Investing in Equilibrium, Journal of Financial Economics, 2021,  142 (2),  pp. 550-571

 

    Pedersen, L. H., S. Fitzgibbons, and L. Pomorski. , Responsible investing: The ESG-efficient frontier,  Journal of Financial Economics , 2021, 142 (29),  pp. : 572-597.

Avramov, D., Cheng, S., Lioui, A., and  Tarelli, A. ,. Sustainable investing with ESG rating uncertainty., Journal of Financial Economics., 2021, available on line

Bolton P, Kacperczyk M. Do investors care about carbon risk?. Journal of Financial Economics. 2021 Nov 1;142(2):517-49.

Pastor L, Stambaugh RF, Taylor LA. Dissecting green returns. National Bureau of Economic Research; 2021 Jun 21.

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Course delivery

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Learning assessment methods


Assignments and problems sets on parts 1 to 4 will be distributed.

Suggested readings and bibliography

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