Professor Malinova, ECO358H1F: Risk and Risk Aversion
Risk and Risk Aversion:
Expected Utility
Professor Malinova, ECO358H1F
October 20-27, 2015
Professor Malinova, ECO358H1F: Risk and Risk Aversion
Choices Under Uncertainty I
We would like to have a fram
ECO358 Lecture 7
Arbitrage Pricing Theory (APT)
[Factor Models and Arbitrage Pricing Theory]
Ata Mazaheri
0
Outline
Objective: To discuss the nature and illustrate the
use of arbitrage. To introduce the index model and
the APT.
The Single Index Model
T
ECO358 Lecture 6
Capital Asset Pricing Model (CAPM)
Ata Mazaheri
0
Lecture Outline
Basic version of the model and its
applicability
Review
Assumptions
Derivation of CAPM
The Security Market Line (SML)
CAPM & Risk
CAPM Critique
1
Mean-Variance Revie
ECO358 Lecture 5
Mean-variance Analysis
Portfolio Selection
Ata Mazaheri
0
Lecture Outline
Capital allocation decision
- A Short review of MVU
- Risky & Risk Free
- Optimal allocation of assets
Two-security portfolios and extensions
The Markowitz portf
ECO358 Lecture 4
Risk, Return & the Portfolio Theory
Ata Mazaheri
0
Outline
Definition & historical record
Risk and risk aversion
The Expected Utility
Mean Variance Utility Function (MV)
Mathematics of the Portfolio Theory
The Modern Portfolio Theor
ECO358 Lecture 2 & Lecture 3
Valuation: World without Uncertainty
Ata Mazaheri
0
Lecture Outline
First Principal of Valuation
- The concept
- The rules
Bond Valuation
- Zero rates
- Forward Rates
- Term Structure
Stock Valuation
1
First Principal of Va
ECO358 Lecture 1
Introduction:
Overview of Financial Markets
Ata Mazaheri
0
Lecture Outline
Introduction
Financial Economics?
Financial Markets?
1
Introduction
The course
The textbook
The website
The evaluation
The group project
What you should do?
2
1
University of Toronto
Midterm Examination, 2012-13
ECO 358H1F
Instructor: Professor Malinova
Duration: 2 hours 50 minutes
Aids allowed:
1. A non-programmable calculator (no nancial calculators!)
2. A Formula Sheet.
Details: one page, letter-sized sheet of
UNIVERSITY OF TORONTO
DEPARTMENT OF ECONOMICS
ECO358: FINANCIAL ECONOMICS
Sample Test-1(Solutions)
Instructions: This is a closed book examination. A formula sheet is attached. Show all your work
otherwise you will not get full credit.
Make sure you alloc
UNIVERSITY OF TORONTO
DEPARTMENT OF ECONOMICS
ECO358: FINANCIAL ECONOMICS
Ata Mazaheri
Sample Test-1
Instructions: This is a closed book examination. A formula sheet is attached. Show all your work
otherwise you will not get full credit.
Make sure you all
UNIVERSITY OF TORONTO
DEPARTMENT OF ECONOMICS
ECO358: FINANCIAL ECONOMICS
Sample Test-1
Instructions: This is a closed book examination. A formula sheet is attached. Show all your work
otherwise you will not get full credit.
Make sure you allocate time ap
UNIVERSITY OF TORONTO
DEPARTMENT OF ECONOMICS
ECO358: FINANCIAL ECONOMICS
Sample Test-1(Solutions)
Instructions: This is a closed book examination. A fomual sheet is attached. Show all your work
otherwise you will not get full credit.
Make sure you alloca
UNIVERSITY OF TORONTO
Department of Economics
ECO358: FINANCIAL ECONOMICS
A. Mazaheri
Fall 2014
Test-1(Solutions)
Instructions: This is a closed book examination. A formula sheet is attached. Show your work otherwise
you will not get full credit.
Make sur
ECO358 Lecture 8
Market Efficiency
Empirical Evidence
Ata Mazaheri
0
Efficient Market Hypothesis (EMH)
Do security prices reflect information?
Why look at market efficiency
Implications for business and corporate finance
Implications for investment
1
ECO358 Lecture 9
State Prices
Ata Mazaheri
0
Lecture Outline
Arrow-Debreu State Prices
Comparison with CAPM
State prices and Risk Neutral Valuation
1
Consider the following Example
Value
Up
(p=40%)
Down
(1-p=60%)
Expected Return
Bond
1
1.05
1.05
5%
Mar
ECO358 Lecture 10
Options I
Ata Mazaheri
0
Lecture Outline
Introduction to options
Options investment characteristics
Put-Call parity relationship
Option strategies
1
Option Terminology
Buy - Long
Sell - Short
Call
Put
Key Elements
Exercise or Strike
Professor Malinova, ECO358H1F: Risk and Risk Aversion
Professor Malinova, ECO358H1F: Risk and Risk Aversion
Choices Under Uncertainty I
Risk and Risk Aversion:
Expected Utility
Professor Malinova, ECO358H1F
October 20-27, 2015
We would like to have a fram
University of Toronto
ECO 358H1F, QUESTIONS AND ANSWER KEY
Term Test 2
Professor: Katya Malinova
Duration: 1 hour 50 minutes.
Permitted Aids:
1. A Calculator.
Details: No restrictions on a calculator.
2. A Formula Sheet.
Details: one page, one-sided, A4 o
Financial Options
Slides for ECO358 H1F
Based on Berk et. al Ch 14
Learning Objectives
1. Define the following terms: call option, put option, exercise
price, strike price, exercising the option, expiration date,
American option, European option, in-the-m
Eciency, CAPM: Empirics, Professor Malinova, ECO358
Market Eciency.
Empirical Tests of CAPM.
Related to Berk et al Ch. 13.
Professor Malinova, ECO358
December 01, 2015
Eciency, CAPM: Empirics, Professor Malinova, ECO358
Plan
Discuss Market Eciency
Discuss
Professor Malinova, ECO358H1F: Mean-Variance Portfolio Theory
Mean-Variance Framework:
Portfolio Theory with Multiple Risky Assets
Professor Malinova, ECO358H1F
Based on Bodie et al, Chapter 6
November 03, 2015
Professor Malinova, ECO358H1F: Mean-Variance
Professor Malinova, ECO358H1F: Expected Return and Variance of a Portfolio; Diversication.
Large Portfolio I
Consider a portfolio of n stocks.
The expected return is
Rp = x1 R1 + x2 R2 + . . . + xn Rn
Using the properties of a covariance (recall that its
UNIVERSITY OF TORONTO
DEPARTMENT OF ECONOMICS
ECO358: FINANCIAL ECONOMICS
Sample Test-1(Solutions)
Instructions: This is a closed book examination. Show all your work otherwise you will not get full
credit.
Make sure you allocate time appropriately.
You h
UNIVERSITY OF TORONTO
DEPARTMENT OF ECONOMICS
ECO358: FINANCIAL ECONOMICS
Sample Test-1(Solutions)
Instructions: This is a closed book examination. Show all your work otherwise you will not get full
credit.
Make sure you allocate time appropriately.
You h
UNIVERSITY OF TORONTO
St George Camps
DEPARTMENT OF ECONOMICS
ECO358: Financial Economics-I
Summer 2015
Test-2 (Solutions)
Instructor A. Mazaheri
Instructions: This is a closed book examination. You are allowed a one-sided cheat sheet and a nonprogrammabl
UNIVERSITY OF TORONTO
DEPARTMENT OF ECONOMICS
ECO358: FINANCIAL ECONOMICS-I
Sample Final
Instructor: Ata Mazaheri
(Solutions)
Instructions: This is a closed book examination. You are permitted to bring a non-programmable
calculator. A formula sheet is att
ECO358: FINANCIAL ECONOMICS-I
A. Mazaheri
Summer 2015
Test-1(Solutions)
Instructions: This is a closed book examination. You are permitted to bring a non-programmable
calculator and a hand-written one side of one 8 11 page with notes and/or formulae. Show
EC0358 Lecture 11
Options (II)
Ata Mazaheri
0
Lecture Outline
Objective: Option pricing
Factors influencing option values
Binomial Option Pricing
Black-Scholes option valuation
1
Option Values
Intrinsic value - profit that could be made if
the option
UNIVERSITY OF TORONTO
DEPARTMENT OF ECONOMICS
ECO358: FINANCIAL ECONOMICS
Sample Test-2 (2)
(Solutions)
Instructions: This is a closed book examination. You are permitted to bring a non-programmable
calculator. A formula sheet is allowed. Show all your wo
UNIVERSITY OF TORONTO
DEPARTMENT OF ECONOMICS
ECO358: FINANCIAL ECONOMICS-I
Sample Final
Instructor: Ata Mazaheri
(Solutions)
Instructions: This is a closed book examination. You are permitted to bring a non-programmable
calculator. A formula sheet is att
Name:
ECO358H1F
Student Number :
University of Toronto
Midterm I, 2013-14
ECO 358H1F, Section L0101
Instructor: Professor Malinova
Duration: 1 hour 50 minutes
Aids allowed:
1. A calculator (no financial calculators; programmable calculators are ok but the
Bond Valuation
Professor Malinova, ECO358
September 27/October 04
reading: Bodie et al, Ch. 12-13.
What is This Set of Slides About?
We will first discuss how to price bonds and the related
terminology (loosely, Ch. 12):
A bond promised a fixed stream o