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 4: Efficiency, Assets, and Time

4.1 ( 11 )

Lecture Details

Financial Theory (ECON 251)

Over time, economists justifications for why free markets are a good thing have changed. In the first few classes, we saw how under some conditions, the competitive allocation maximizes the sum of agents utilities. When it was found that this property didnt hold generally, the idea of Pareto efficiency was developed. This class reviews two proofs that equilibrium is Pareto efficient, looking at the arguments of economists Edgeworth, and Arrow-Debreu. The lecture suggests that if a broadening of the economic model invalidated the sum of utilities justification of free markets, a further broadening might invalidate the Pareto efficiency justification of unregulated markets. Finally, Professor Geanakoplos discusses how Irving Fisher introduced two crucial ingredients of finance,--time and assets--into the standard economic equilibrium model.

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

This course was recorded in Fall 2009.



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

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Great course. Thank you very much.