UNIVERSITY OF CALIFORNIA DEPARTMENT OF ECONOMICS ECONOMICS 136 Financial Economics TuTh 8:00-9:30 am Evans Hall #10 Instructor: Professor

Hamid Shomali Evans Hall, Room 520 Office Hours: T Th 9:30-10:00 hamidshomali@yahoo.com Stephen Bianchi Wendy Jin Sung Bin Sohn Yury Yatsynovich

Fall 2011 PROF. H. SHOMALI

GSIs:

sbianchi@econ.berkeley.edu wendyjin@econ.berkeley.edu sungbin@econ.berkeley.edu yyatsyn@econ.berkely.edu

Learning Goals: The objective of this course is to introduce the working of financial markets, explore the characteristics and pricing mechanism of various financial products. The course also introduces the fundamentals of portfolio management and portfolio performance evaluation. Finally, we explore various derivatives, their pricing and their use in hedging and risk management. Course Home Page: Use bspace.berkeley.edu. to go to the home page of this course. Notes, problem sets and solutions as well as some reading material will be posted on course home page. Required Text: Bodie, Zvi, Alex Kane and Alan J Marcus, Investments, 9th. Edition, Irwin/McGraw-Hill, 2011 First MT Second MT Final Homework 20% 20% 40% 20%

Grading:

Grading Scale:

91 - 100 81 90 71 80 61 70 60 & less

A B C D F

If your grade fall in the middle of the range such as (84, 85 and 86), you will get a B. Upper part of the range will be B+ and the lower part will be B-. The same applies to all grades. Supplementary Readings: Brealey, Richard A. and Stewart C. Myers, Principles of Corporate Finance, 9th. Edition, McGraw-Hill, 2008. Brigham, Eugene F., and Phillip R. Daves, Intermediate Financial Management, 10th. Edition, SOUTH-WESTERN, 2007. Fabozzi, Frank J., Franco Modigliani, and Frank J. Jones, Foundations of Financial Markets and Institutions, 4th.. Edition, Prentice Hall, 2009 Malkiel, Burton, A Random Walk Down Wall Street, W.W.Norton, 1999 Shiller, Robert J., Irrational Exuberance, Princeton University Press, 2000. Class Schedule: Week Week 1 Aug 25 Week 2 Aug 30 Sep 1 Week 3 Sep 6 & 9 Week 4 Sep 13 & 15 Week 5 Sep 20 & 22 Topic The Investment Environment Asset Classes Security Trading Chapters Bodie, Chapters 1 Bodie, Chapters 3 & 4

Risk vs. Expected return Capital Allocation Model Optimal Risky Portfolios First MT. Sep 22

Bodie, Chapter 5 Bodie, Chapter 6 Bodie, Chapter 7

Week 6 Sep27 & 29 Week 7 Oct 4 & 6 Week 8 Oct 11 & 13 Week 9 Oct 18 & 20 Week 10 Oct 25 & 27 Week 11 Nov 1 & 3

Index Models Capital Asset Pricing Model APT and Multifactor Models Market Efficiency Behavioral Finance

Bodie, Chapter 8 Bodie, Chapter 9 Bodie, Chapter 10 Bodie, Chapter 11 Bodie, Chapter 12

Bond Prices, Term Structure of Interest Rates Second MT-Nov 3

Bodie, Chapter 14 & 15

Week 12 Nov 8 & 10 Week 13 Nov 15 & 17 Week 14 Nov 22 & 24 Week 15 Nov 29 Dec 1

Bond Portfolio & Industry Analysis Equity Valuation & Options Option Valuation & Futures Swaps and Risk Management Portfolio Performance Evaluation Final Exam- Dec 14

Bodie, Chapters 16 & 17 Bodie, Chapters 18 & 20 Bodie, Chapters 21 & 22 Bodie, Chapter 23 & 24