Economics of Financial Markets
Postgraduate: Level 7
Monday 15 January 2024
Friday 22 March 2024
23 October 2023
Requisites for this module
MSC LN1412 Financial Economics and Accounting,
MSC L10312 Financial and Business Economics,
MA L11312 Financial Economics,
MSC L11112 Financial Economics,
MSC L111EB Financial Economics,
MSC L10212 Financial Economics and Econometrics,
MSC N3L112 Financial Technology (Economics),
MECNL131 Financial Economics,
MECNLB31 Financial Economics (Including Placement Year),
MECNLB32 Financial Economics (Including Year Abroad)
In view of the 2007 financial crisis, the role of financial markets and the usefulness of risk management models have been called into question.
The oversights that led to market and regulatory failures entail the use of reductionist financial models that abstract from institutions, incentives and strategic behaviour of market participants. This course is divided into 4 parts.
The aim of this module is:
- To equip student with theoretical and operational/computational skills to deal with financial market data in a post 2007 financial crisis environment.
By the end of this module, students will be expected to be able to:
- Understand the significance of the boom bust cycle of markets is emphasized along with the role of financial innovations and regulatory incentives in credit and leverage creation.
- Understand portfolio techniques aimed at dealing with regime switches will be taught and a critical perspective on whether derivatives markets exacerbate or reduce financial market volatility.
- Learn new modelling tools such as financial network analysis to overcome problems of reductionist models and currently being pioneered at central banks and policy institutions.
- Understand new perspectives on financial markets that discourage business as usual thinking that precipitated the crisis.
- Have received rigorous training that will help them with jobs in banking, finance and regulatory institutions such as central banks and policy oriented organizations.
In Part I, we will start with an overview of the 2007 financial crisis and the challenges it poses for financial economics.
Part II of the course reviews the scope of risk and return in and the role of equity/stock markets. The extreme boom bust characteristics of financial markets imply that the textbook models of the last two decades that assume Gaussian properties for asset returns have been found to be wrong. In addition to standard Capital Asset Pricing Model and the Markovitz model of equity portfolio management, the student is introduced to a more realistic regime switching portfolio model better suited to deal with boom bust characteristics of markets.
In Part III, the role of derivatives for risk mitigation in financial markets is studied. The Black-Scholes option pricing model under conditions of Brownian Motion is reviewed. The use of index futures for overcoming market risk is analysed.
Part IV will look at systemic risk from financial activity in global derivatives markets, which are purported to enable risk sharing. Systemic risk is viewed as a negative externality problem for which financial network models have been put forward to provide holistic visualization to avoid fallacy of composition problems that lead to poor financial decisions and regulation.
This module will be delivered via:
- One 2-hour lecture per week.
- One 1-hour class per week .
This module does not appear to have a published bibliography for this year.
Assessment items, weightings and deadlines
|Coursework / exam
|Main exam: In-Person, Open Book, 120 minutes during Summer (Main Period)
|Reassessment Main exam: In-Person, Open Book, 120 minutes during September (Reassessment Period)
Exam format definitions
- Remote, open book: Your exam will take place remotely via an online learning platform. You may refer to any physical or electronic materials during the exam.
- In-person, open book: Your exam will take place on campus under invigilation. You may refer to any physical materials such as paper study notes or a textbook during the exam. Electronic devices may not be used in the exam.
- In-person, open book (restricted): The exam will take place on campus under invigilation. You may refer only to specific physical materials such as a named textbook during the exam. Permitted materials will be specified by your department. Electronic devices may not be used in the exam.
- In-person, closed book: The exam will take place on campus under invigilation. You may not refer to any physical materials or electronic devices during the exam. There may be times when a paper dictionary,
for example, may be permitted in an otherwise closed book exam. Any exceptions will be specified by your department.
Your department will provide further guidance before your exams.
Module supervisor and teaching staff
Prof Sheri Markose, email: email@example.com.
Lectures & Classes: Prof Sheri Markose
For further information, send an email message to firstname.lastname@example.org.
Miss Maria Kyriacou
Available via Moodle
Of 18 hours, 18 (100%) hours available to students:
0 hours not recorded due to service coverage or fault;
0 hours not recorded due to opt-out by lecturer(s), module, or event type.
Disclaimer: The University makes every effort to ensure that this information on its Module Directory is accurate and up-to-date. Exceptionally it can
be necessary to make changes, for example to programmes, modules, facilities or fees. Examples of such reasons might include a change of law or regulatory requirements,
industrial action, lack of demand, departure of key personnel, change in government policy, or withdrawal/reduction of funding. Changes to modules may for example consist
of variations to the content and method of delivery or assessment of modules and other services, to discontinue modules and other services and to merge or combine modules.
The University will endeavour to keep such changes to a minimum, and will also keep students informed appropriately by updating our programme specifications and module directory.
The full Procedures, Rules and Regulations of the University governing how it operates are set out in the Charter, Statutes and Ordinances and in the University Regulations, Policy and Procedures.