ANTONIO MELE – LECTURE NOTES IN FINANCIAL ECONOMICS

The lecture notes are based on my teaching notes for advanced undergraduate and graduate courses in financial economics, macroeconomic dynamics, financial econometrics and financial engineering. The tools of analysis used in Part II and Part III are developed in Part I. Classical portfolio selection, dynamic consumption- and production- based asset pricing, the intricacies underlying incomplete markets and some other market imperfections are just some of the topics covered by these tools. There are empirical facts in finance and the challenges they pose to financial economists, from excess price volatility and countercyclical stock market volatility to cross-sectional puzzles such as the value premium. The main models aim to take the puzzles on board. To use the main tools in Part I and cope with the main challenges occurring in actual capital markets arises from option pricing and trading, interest rate modeling and credit risk and their associated derivatives. Part II is about the big puzzles we face in fundamental research, while Part III is about how to live within our current and certainly unsatisfactory paradigms, so as to cope with demand for intellectual expertise.

The notes are still underground. Sometimes the English is a bit informal and the economic motivation and intuition are not always developed as deeply as they deserve. I still have to include material on asset pricing with asymmetric information, monetary models of asset prices, bubbles, asset prices implications of overlapping generations models, or financial frictions. In Part II, I need to include more extensive surveys. The notes will be revised to fill the gaps. Any comments on this version are welcome.

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