ECON 251 | FINANCIAL THEORY

LECTURE 1: Certain school of professors lead by Robert Merton and Myron Scholes et al. lead the field of finance. Their students dominated Wall Street. They didnt believe in regulation. They looked at the general stock market for the performance of a country, as prices of assets represented full information. They purported that markets were very efficient. Greatest Yale economist from the United States was Irving Fisher. He was a mathematical economist, an econometrician. He studied finance. Looking at Dow Jones: It is an index that shows how 30 large publicly owned companies based in the United States have traded during a standard trading session in the stock market. S&P 500: https://en.wikipedia.org/wiki/S%26P_500 Efficient Markets Hypothesis: https://en.wikipedia.org/wiki/Efficient_markets Case-Shiller Housing Price Index: Study the housing prices of the housing crisis.
https://en.wikipedia.org/wiki/Case-Shiller_index

Professors Theory: When you get a loan, you need an interest rate and the collateral. Down payment got lower and lower through the housing bubble. Blah Blah Blah. (See lecture around 20:00.) LECTURE 2: Exogenous variables, e. An exogenous change is one that comes from outside the model and is unexplained by the model. For example, in the simple supply and demand model, a change in consumer tastes or preferences is unexplained by the model and also leads to endogenous changes in demand that lead to changes in the equilibrium price. Similarly, a change in the consumer's income is given outside the model. Endogenous variables, x. Equilibrium conditions: F(e,x) = 0 Equilibrium x(e) so that F(e,x(e))=0 Comparative statics. Reservation price. http://en.wikipedia.org/wiki/Reservation_price See paper notes for mathematics. LECTURE 3: See paper notes for general equilibrium models. LECTURE 4: See paper notes for Pareto Optimality proof. LECTURE 5: The free market has been proven to achieve Pareto Efficiencyunder ideal conditions. See paper notes for financial equilibrium models. LECTURE 6: