Advanced Security Markets and Financial Contracts 7.5 credits

The course focuses on the economic analysis of the different types of securities and contracts used in financial transactions, and the markets in which they are traded. After a brief review of investment decisions and the valuation of business units, the theory of choice under risk and its application to models of asset pricing are covered. Arbitrage pricing is also considered, both as a general asset pricing strategy, and in connection with specific models, such as those conventionally used in option pricing. The main types of securities considered are bonds and debt securities in general, and shares of the stock of companies. In either case, we consider both the general structure of the securities of the respective type, and the implications of the structure for the determination of the firms’ optimal financial structure. A specific part of the course covers models of dynamic optimisation. These models allow tackling business problems which entail related optimising decisions made at distinct points in time, such as the optimal timing of the launching of new products, optimal R&D strategies, inventory management and the renewal of machinery.