Description:

This course provides students with a working knowledge of the economic models and concepts which underlie many of the mathematical and statistical tools that are taught elsewhere in the MSCF program. The first half of the course develops the microeconomics which underlie classical valuation theory: arbitragefree pricing, equilibrium pricing and decisionmaking under uncertainty. The second half goes through a variety of topics in international macroeconomics, including interest rate determination and monetary policy, foreign exchange rates, money and banking, and international capital flows and financial crises. A key aspect of the course is that the topics and tools from the first half of the course are extensively used in the second half. For example, a discretetime, lognormal pricing kernel model (from the theory of arbitragefree valuation) will be used to understand currency risk premiums and, therefore, the relationship between interest rates and exchange rates. The course will make explicit the linkages between its own material and that of other MSCF courses, thereby providing students with an economicsbased foundation for many of the valuation tools which form the core of the MSCF curriculum. Prerequisite: Intro to MSCF Finance 45711
