The objective of this course is to provide students with the rigorous theoretical foundations of modern financial economics. The course will cover the central themes of modern finance including individual investment decisions under uncertainty, stochastic dominance, mean variance analysis, arbitrage pricing theory, capital market equilibrium and asset valuation, risk neutral valuation, and incomplete markets. It will give a quick introduction to Ito calculus and its applications to derivative pricing, including options, futures, interest rates, and credit risks. After completing this course, the students should acquire a clear understanding of the major theoretical results concerning individuals’ consumption and portfolio decisions under uncertainty and their implications for the valuation of securities.

Prerequisites: Calculus, matrix algebra, and probability