FINANCIAL ECONOMICS ECO 369F Unique Number 34865 Spring 2014 Lectures: M, W 9:30 a.m. - 11:00 a.m.

, CLA 0.102 Instructor: Dr. Svetlana Boyarchenko Office: BRB 2.160 Phone: 475-8521 Email: [email protected] M, W 11:00 a.m.-12:30 p.m., or by appointment Ms. Jessica Fears Office: BRB 3.128, e-mail: [email protected] T, Th 1:00 p.m. 2:30 p.m.

Office Hours: TA: Office Hours:

Purpose of the Course and Prerequisites: The course covers the general principles of financial economics and lays out the foundation for more specialized courses to be taken in the future. It is built around the foundations of financial economics: the time value of money, asset valuation and risk management. The course specifically deals with optimization over time, discounted cash flow analysis, asset valuation, futures markets, portfolio theory, options pricing, options strategies and capital structure. An emphasis is put on the application of these financial concepts to decisions faced by households and firms. Prerequisites for this course are ECO 420K (Microeconomic Theory), ECO 320L (Macroeconomic Theory), and ECO 329 (Economic Statistics) with a grade of at least C- in each; ECO 322 (Money and Banking) is recommended. Course Expectations: You should be prepared to spend substantial time outside class on readings and frequent homework assignments. I employ an interactive teaching style in the classroom and I expect you to be an active participant in this course. Please read all weekly assignments by the first class day of the week. You cannot be an active participant in the class if you are not in attendance. During this course I will be asking you to give me feedback on the course. It is very important for me to know your reaction to what we are doing in class. I believe that together we can create an environment effective for teaching and learning. Text: Financial Economics by Jrgen Eichberger and Ian R. Harper 2009. Lecture Notes, posted on the Blackboard as class progresses. 1

Assessment: There will be problem sets, two midterms and a final. All exams are closed book ones. Midterm exams are NOT cumulative: material covered in one exam will not be covered in the later exam. The final exam is cumulative. There will be NO MAKE-UP DATES for either the midterms or the final. In case you miss one of the exams for a documented illness, emergency, a religious observance or other university-approved reason, the corresponding part of your final exam will be counted twice. The final score will be the weighted sum of the following: problem sets 20% (total) midterms 40% (20% each) final 40% I will use Plus/Minus grading for the final grade. As will be assigned to about 35% of the class, and As and Bs together will be assigned to about 75% of the class. Dates of the midterms: February 19, and April 2 in class. The date of the final is set by the Registrar. Homeworks are important, indispensable part of the course; you should spend considerable time and effort on them. I strongly encourage you to work on the problem sets in study groups. However, before meeting with your group you should have attempted each question - study groups work best when they facilitate learning from each other, not when they are used simply to permit division of labor (i.e., you wont learn very much by simply copying other students answers). Homeworks and solutions will be posted on the Blackboard. Homework assignments are not accepted under any circumstances after solutions have been posted. Tentative Course Outline (subject to change):

Date Jan. 13, 15, 20, 22 Jan. 27, 29, Feb. 3 Feb. 5, 10 Feb. 12, 17, 24, 26 Feb. 19 March 3,5 March 17, 19 March 24, 26, 31 April 2 April 7, 9 April 14, 16 April 21, 23 April 28, 30

Topic Decision-making under uncertainty Portfolio choice Systems of financial markets Arbitrage and option pricing Midterm 1 Firms and financial markets Real options Debt contracts and credit rationing Midterm 2 Deposit contracts and banking Regulation of banks Dynamic finance economy Empirics and puzzles

Readings Chapter 1 Chapter 2 Chapter 3 Chapter 4 Material through Feb.10 Chapter 5 Lecture notes Chapter 6 Material through March 19 Chapter 7 Chapter 8 Lecture notes Lecture notes

Academic Integrity University of Texas Honor Code The core values of The University of Texas at Austin are learning, discovery, freedom, leadership, individual opportunity, and responsibility. Each member of the university is expected to uphold these values through integrity, honesty, trust, fairness, and respect toward peers and community.

You are encouraged to study together and to discuss information and concepts covered in lecture and the sections with other students. You can give "consulting" help to or receive "consulting" help from such students. However, this permissible cooperation should never involve one student having possession of a copy of all or part of work done by someone else, in the form of an e mail, an e mail attachment file, a diskette, or a hard copy. Should copying occur, both the student who copied work from another student and the student who gave material to be copied will both automatically receive a zero for the assignment. Penalty for violation of this Code can also be extended to include failure of the course and University disciplinary action. During examinations, you must do your own work. Talking or discussion is not permitted during the examinations, nor may you compare papers, copy from others, or collaborate in any way. Any collaborative behavior during the examinations will result in failure of the exam, and may lead to failure of the course and University disciplinary action.

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Please notify me as early in the semester as possible if disability-related accommodations for field trips are required. Advanced notice will permit the arrangement of accommodations on the given day (e.g., transportation, site accessibility, etc.). Contact Services for Students with Disabilities at 471-6259 (voice) or 1-866-329-3986 (video phone) or reference SSDs website for more disability-related information: http://www.utexas.edu/diversity/ddce/ssd/for_cstudents.php

Behavior Concerns Advice Line (BCAL) If you are worried about someone who is acting differently, you may use the Behavior Concerns Advice Line to discuss by phone your concerns about another individuals behavior. This service is provided through a partnership among the Office of the Dean of Students, the Counseling and Mental Health Center (CMHC), the Employee Assistance Program (EAP), and The University of Texas Police Department (UTPD). Call 512-232-5050 or visit http://www.utexas.edu/safety/bcal. Q drop Policy The State of Texas has enacted a law that limits the number of course drops for academic reasons to six (6). As stated in Senate Bill 1231: Beginning with the fall 2007 academic term, an institution of higher education may not permit an undergraduate student a total of more than six dropped courses, including any course a transfer student has dropped at another institution of higher education, unless the student shows good cause for dropping more than that number. Emergency Evacuation Policy Occupants of buildings on the UT Austin campus are required to evacuate and assemble outside when a fire alarm is activated or an announcement is made. Please be aware of the following policies regarding evacuation: Familiarize yourself with all exit doors of the classroom and the building. Remember that the nearest exit door may not be the one you used when you entered the building. If you require assistance to evacuate, inform me in writing during the first week of class. In the event of an evacuation, follow my instructions or those of class instructors. Do not re-enter a building unless youre given instructions by the Austin Fire Department, the UT Austin Police Department, or the Fire Prevention Services office.