lec01_03 - ECON 4721H Money and Banking Lecture 01_03...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ECON 4721H Money and Banking Lecture 01_03 Satoshi Tanaka University of Minnesota September 16, 2011 Satoshi Tanaka ECON 4721H Money and Banking Lecture 01_03 Understanding Risk III Asset Prices and the Real Economy Satoshi Tanaka ECON 4721H Money and Banking Lecture 01_03 Today's Questions How the real economy a ects asset prices? If the following two assets have the same mean payo , which should be priced higher? Why? Stocks of the auto industry Stocks of the food industry Satoshi Tanaka ECON 4721H Money and Banking Lecture 01_03 Today's Points 1 Implications of the asset pricing formula. 1 Why p = E [ mx ] ? Why not p = E [ x ] ? 2 How the real economy a ects p = E [ mx ] ? 2 How good is the performance of this formula? 1 Why the performance is not good? Satoshi Tanaka ECON 4721H Money and Banking Lecture 01_03 Settings Two possible states; sunny day ( S ), and rainy day ( R ). ω ∈{ S , R } Probabilities, π S and π R where π S + π R = 1. Suppose we have the following securities; x 1 = ( x 1 ( S ) = 1 x 1 ( R ) = x 2 = ( x 2 ( S ) = x 2 ( R ) = 1 and their prices are p 1 and p 2 ....
View Full Document

This note was uploaded on 02/07/2012 for the course ECON 4721H taught by Professor Tanaka during the Fall '11 term at Minnesota.

Page1 / 14

lec01_03 - ECON 4721H Money and Banking Lecture 01_03...

This preview shows document pages 1 - 6. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online