ECON4515 – Finance Theory 1: Portfolio choice and equilibrium models

Course content

The course will cover the following topics:

  • Individual decision-making under uncertainty, in particular expected utility and the mean-variance criterion
  • Portfolio choice and separation
  • Capital asset pricing models (also without riskless asset) and complete markets for state contingent claims, spanning, consequences for investment decisions
  • Market efficiency, information paradox
  • Welfare theory under uncertainty

Learning outcome

Knowledge outcomes
You will learn the basic theory of portfolio choice and different equilibrium models for financial markets under one-period uncertainty. An important part of this is knowledge about when, how, and to what extent the models are applicable. The course also gives some knowledge of empirical research on this. Moreover, you will learn about implications of the theory for capital budgeting and financing decisions in the private sector. The course also looks at welfare theory under uncertainty, and at some consequences for social decision making.

Skills
You will learn how to use the various measures of risk for individual assets and for portfolios. This includes what sources can be used to estimate these, how they are calculated, and how they are affected by, e.g., combining assets. You will be able disentangle information about real-world assets, e.g., financial assets (and loans), to find the relevant measures of risk and expected returns. You will learn how to introduce relevant concepts of risk both in theoretical and practical considerations.

Admission

Students who are admitted to study programmes at UiO must each semester register which courses and exams they wish to sign up for in Studentweb.

If you are not already enrolled as a student at UiO, please see our information about admission requirements and procedures.

Prerequisites

Formal prerequisite knowledge

Bachelor's degree in Economics, or equivalent

Recommended previous knowledge

Mathematics at least at the level of ECON3120 – Mathematics 2: Calculus and Linear Algebra / ECON4120 – Mathematics 2: Calculus and Linear Algebra. This math course may be taken in parallel with ECON4515 – Finance Theory 1: Portfolio choice and equilibrium models (discontinued). Some background in statistics (at least at the level of ECON2130 – Statistikk for ?konomer).

Overlapping courses

Teaching

Lec