Financial Theory

Yale, , Prof. John Geanakoplos

Updated On 02 Feb, 19


Why Finance? - Utilities, Endowments, and Equilibrium - Computing Equilibrium - Efficiency, Assets, and Time - Present Value Prices and the Real Rate of Interest - Irving Fisher's Impatience Theory of Interest - Shakespeare's Merchant of Venice and Collateral, Present Value and the Vocabulary of Finance - How a Long-Lived Institution Figures an Annual Budget. Yield - Yield Curve Arbitrage - Dynamic Present Value - Social Security - Overlapping Generations Models of the Economy - Demography and Asset Pricing: Will the Stock Market Decline when the Baby Boomers Retire? - Quantifying Uncertainty and Risk - Uncertainty and the Rational Expectations Hypothesis - Backward Induction and Optimal Stopping Times - Callable Bonds and the Mortgage Prepayment Option - Modeling Mortgage Prepayments and Valuing Mortgages - History of the Mortgage Market: A Personal Narrative - Dynamic Hedging - Dynamic Hedging and Average Life - Risk Aversion and the Capital Asset Pricing Theorem - The Mutual Fund Theorem and Covariance Pricing Theorems - Risk, Return, and Social Security - The Leverage Cycle and the Subprime Mortgage Crisis - The Leverage Cycle and Crashes


Lecture 2: Utilities, Endowments, and Equilibrium

4.1 ( 11 )

Lecture Details

Financial Theory (ECON 251)

This lecture explains what an economic model is, and why it allows for counterfactual reasoning and often yields paradoxical conclusions. Typically, equilibrium is defined as the solution to a system of simultaneous equations. The most important economic model is that of supply and demand in one market, which was understood to some extent by the Ancient Greeks and even by Shakespeare. That model accurately fits the experiment from the last class, as well as many other markets, such as the Paris Bourse, online trading, the commodities pit, and a host of others. The modern theory of general economic equilibrium described in this lecture extends that model to continuous quantities and multiple commodities. It is the bedrock on which we will build the model of financial equilibrium in subsequent lectures.

Complete course materials are available at the Open Yale Courses website httpopen.yale.educourses

This course was recorded in Fall 2009.



8 Ratings
comment person image


Excellent course helped me understand topic that i couldn't while attendinfg my college.

comment person image


Great course. Thank you very much.