Theory of Finance 2600-DSFRz2TF
Elements of finance theory (assumptions and conditions of application of the theory; models in finance theory; hypotheses, predictions and implications; exemplary empirical research of finance theory; practical applications of the theory). Concepts, issues and tools used in the theory of finance: including: the concept of the time value of money, the concept of risk and rate of return, the concept of the term structure of interest rates and the use in the valuation of debt instruments, the basis for the valuation of equity instruments.
Thematic issues:
I. Taxonomy of financial theories:
(1) theories of classical finance Capital structure theories (capital structure theory by Modigliani and Miller, 1958; agency costs theory by Jensen and Meckling, 1976); theory of preferred capital structure in a situation of information asymmetry by Donaldson (1961) and Myers and Majluf, 1984 (pecking-order theory of capital structure); Kraus and Litzenberger, 1971 (static trade-off theory of capital structure); Asset pricing theories (theory of financial market efficiency by Fama, 1965 and its modifications by Brown, 1968 and 1978; option pricing theory by Black and Scholes, 1973) Theories of capital budgeting and the cost of equity (equity) capital (Sharp and Lintner's capital asset pricing model, 1964; discounted cash flow theory; economic value added theory) Theories of financial behavior (Meckling's theory, 1976, REMM model of "human" behavior (Resourceful, Evaluative, Maximizing Model) Theories of international finance
(2) Behavioral finance theories: Theory of limitations of arbitrage strategies Theory of cognitive psychology (cognitive errors) in finance
II. The concept of risk and its measurement, including the objective and subjective concept of risk; Risk-related measures (ordinary risk, extreme risk, subjective approach in risk analysis)
III,. Reasons for the existence of financial intermediation and regulations on financial markets, structure of financial sectors, role of information asymmetry in shaping the structure of financial sectors
IV,. The relationship between competition and risk
Type of course
Mode
Learning outcomes
Assessment criteria
Assessment criteria
Formally – the attendance at classes is obligatory
The final grade from the lecture depends on the effects of written exam – multiple choice test.
The grade from the laboratories covers the fulfillment of the following activities:
- homework, i.e.: projects, presentations, press news;
- active participation in classes;
- team work;
- written test.
Bibliography
Chapters indicated by the teacher from:
Jajuga K. (ed.) 2019. Risk management, PWN
Baker. H. K., Filbeck, G., Nofsinger J. R. (2021) Behavioral finance, PWN, OXFORD
Mishkin F., 2004. The economics of money, banking and financial markets, Pearson, Addison Wesley. (accessible online)
and Myers, S.C., 2001, Capital structure. Journal of Economic Perspectives—Vol.15, Number 2—Spring 2001—pp. 81–102.. https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.15.2.81
SUPPLEMENTARY:
Tirole J. (2006), The Theory of Corporate Finance, Princeton University Press. (available online)
Other materials recommended by the instructors
Additional information
Additional information (registration calendar, class conductors, localization and schedules of classes), might be available in the USOSweb system: