Financial Economics

by G. Yoganandham PhD

Overview

Financial economics is a branch of economics that analyzes the distribution and use of resources in markets in which decisions are made under uncertainty. Financial decisions must often take into account future events, whether those are related to individual stocks, portfolios, or the market as a whole. The subject is concerned with the allocation and deployment of economic resources, both spatially and across time, in an uncertain environment. It therefore centres on decision-making under uncertainty in the context of financial markets. It is built on the foundations of microeconomics and decision theory. This book provides a comprehensive description of the theory and functioning of financial economics (or economics of finance). It is spread over 28 chapters which have been organized into 5 theme parts.

Product Details

ISBN-13:	9788177085273
Publisher:	New Century Publications
Publication date:	04/06/2022
Pages:	242
Product dimensions:	7.50(w) x 9.75(h) x 0.80(d)

About the Author

Dr. G. Yoganandham is currently Associate Professor and Head, Department of Economics, Thiruvalluvar University, Vellore, Tamil Nadu. He received his M.A. (Economics) degree from Loyola College, Chennai and M.Phil. and Ph.D. degrees from Department of Economics, University of Madras, Chennai. He was awarded Doctoral Research Fellowship by the Ministry of Social Justice and Empowerment, Government of India, New Delhi. The Indian Council of Social Science Research (ICSSR), New Delhi awarded him General Research Fellowship to pursue his post-doctoral research studies.

Table of Contents

Part I: Basics of Financial Economics 1. Financial System and Financial Economics 1.1 Meaning and Importance of Financial System 1.2 Functions of Financial System 1.3 Role of the State in Financial Development 1.4 Determinants of Access to Financial Services 1.5 Financial Neutrality versus Financial Activism 1.6 Financial Volatility versus Financial Stability 1.7 Regulation and Supervision of Financial System 1.8 Meaning and Significance of Financial Economics 1.9 Aspects of Financial Economics 2. Financial Institutions, Financial Markets and Financial Instruments 2.1 Financial Institutions 2.2 Financial Markets 2.3 Financial Instruments Part II: Investment Theory and Portfolio Analysis 3. Theory of the Rate of Interest 3.1 Significance of Interest Rate 3.2 Types of Rate of Interest 3.3 Loanable Fund Theory of the Rate of Interest 3.4 Liquidity Preference Theory of the Rate of Interest 4. Reasons for Interest Rate Differentials 4.1 How Are Interest Rates Determined? 4.2 What is an Interest Rate Differential? 4.3 Causes of Differences in Interest Rates 4.4 Types of Credit (Loans) 5. Term Structure of Interest Rates and Yield Curves 5.1 What is Term Structure of Interest Rates? 5.2 Shapes and Uses of Yield Curve 5.3 Three Theories to Explain Yield Curve 5.4 Fixed Income Securities 6. Portfolio of Assets 6.1 Portfolio Defined 6.2 Portfolio Manager 6.3 Portfolio Management 6.4 Diversification of Portfolio 6.5 Efficient Portfolio and Risk Categories 6.6 Problems with Diversification 7. Mean-Variance Portfolio Analysis 7.1 Importance of Portfolio Theory 7.2 What is Mean-Variance Analysis? 7.3 Investment Strategy 7.4 Main Components of Mean-Variance Analysis 7.5 Assumptions of Mean-Variance Analysis 7.6 Calculation of Expected Return and Variance 7.7 Criticism 8. Markowitz Model 8.1 Assumptions 8.2 Markowitz Efficient Set 8.3 Markowitz Efficient Frontier 8.4 Limitations of the Markowitz Model 9. Capital Asset Pricing Model (CAPM) 9.1 Risk and Return 9.2 Systematic Risks versus Unsystematic Risks 9.3 Risk-Return Trade-off 9.4 CAMP Formula 9.5 Assumptions of CAMP 9.6 Limitations of CAPM 9.7 Consumption Capital Asset Pricing Model (CCAPM) 9.8 Inter-temporal Capital Asset Pricing Model (ICAMP) 10. Capital Market Line (CML) and Security Market Line (SML) 10.1 Capital Market Line (CML) 10.2 Security Market Line (SML) Part III: Derivatives, Forwards, Futures and Options 11. Financial Derivatives: Emergence and Popularity 11.1 Emergence of Complex Financial Products 11.2 Meaning of Derivatives 11.3 Reasons for the Popularity of Derivatives 11.4 Variants (or Types) of Derivative Contracts 11.5 Participants in the Derivatives Market 11.6 Economic Role of Derivatives 11.7 History of Derivatives 11.8 International Experience of Derivatives 12. Forward Contracts (or Forwards) 12.1 What is a Forward Contact? 12.2 Salient Features of Forward Contracts 12.3 Example of a Forward Contract 12.4 Advantages of Forwards 12.5 Problems of Forward Contracts 12.6 Risks with Forward Contracts 12.7 Forward Markets Commission (FMC) of India 13. Future Contracts (or Futures) 13.1 What is a Future Contract? 13.2 History of Futures 13.3 How Do Future Contracts Work? 13.4 Hedgers and Speculators 13.5 Role of Clearing House 13.6 Currency Futures 13.7 Distinction between Forwards and Futures 13.8 Introduction of Futures in India 14. Options 14.1 What is an Option? 14.2 Options in Historical Perspective 14.3 Call Options 14.4 Put Options 14.5 Example of an Option 14.6 Advantages of Option Trading 14.7 Forms of Option Trading 14.8 Valuation Models 14.9 Options Risk Metrics: The Greeks 15. Black-Scholes-Merton Option Pricing Model 15.1 What is Black-Scholes Model? 15.2 Basics of the Black-Scholes Model 15.3 Assumptions of Black-Scholes Model 15.4 Black-Scholes Formula 15.5 Limitations of the Black-Scholes Model 16. Binomial Option Pricing Model 16.1 What is Binomial