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TOPICS IN MATHEMATICAL FINANCE
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TOPICS IN MATHEMATICAL FINANCE
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Academic year 2021/2022
- Course ID
- SEM0145
- Teacher
- Elisa Luciano
- 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
- 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).- Oggetto:
Results of learning outcomes
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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.- Oggetto:
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. 173-97Basak, 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 evidencePerformance 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. 550-571Pedersen, 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.
Suggested readings and bibliography
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- The course material consists of original articles, and eventually selected chapters from "The Economics of Continuous-time Finance" by B. Dumas and E. Luciano, MIT Press. Assignments (mainly model replications/sensitivity) will be given and will be graded as part of the final exam.
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