Financial Markets (ECON 252)
Professor Shiller provides a description of the course, Financial Markets, including administrative details and the topics to be discussed in each lecture. He briefly discusses the importance of studying finance and each key topic. Lecture topics will include: behavioral finance, financial technology, financial instruments, commercial banking, investment banking, financial markets and institutions, real estate, regulation, monetary policy, and democratization of finance.
00:00 – Chapter 1. Introduction to the Course
11:24 – Chapter 2. Textbooks and Course Logistics
24:05 – Chapter 3. Technology and the Subprime Crisis
31:19 – Chapter 4. Is Studying Finance Moral?
46:44 – Chapter 5. Topics Covered in the Course
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Statistics and mathematics underlie the theories of finance. Probability Theory and various distribution types are important to understanding finance. Risk management, for instance, depends on tools such as variance, standard deviation, correlation, and regression analysis. Financial analysis methods such as present values and valuing streams of payments are fundamental to understanding the time value of money and have been in practice for centuries.
00:00 – Chapter 1. The Etymology of Probability
10:01 – Chapter 2. The Beginning of Probability Theory
15:38 – Chapter 3. Measures of Central Tendency: Independence and Geometric Average
33:12 – Chapter 4. Measures of Dispersion and Statistical Applications
50:39 – Chapter 5. Present Value
01:03:46 – Chapter 6. The Expected Utility Theory and Conclusion
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Technology and innovation underlie finance. In order to manage risks successfully, particularly long-term, we must pool large amounts of risk among many, diverse people and overcome barriers such as moral hazard and erroneous framing. Inventions such as insurance contracts and social security, and information technology all the way from such simple things as paper, and the postal service to modern computers have helped to manage risks and to encourage financial systems to address issues pertaining to risk. The tax and welfare system is one of the most important risk management systems.
00:00 – Chapter 1. Introduction
05:22 – Chapter 2. Introduction to the History of Risk Management
12:31 – Chapter 3. Long-Term Risk, Risk-Pooling, and Moral Hazard
26:51 – Chapter 4. Inequality and Communism from the View of Risk
35:53 – Chapter 5. Framing: Its Influence on Consumer Perception
47:59 – Chapter 6. The Development of Insurance and other Unobvious Financial Inventions
01:01:00 – Chapter 7. From the Paper Machine to the Present: Information Technology and Its Impact on Postal Service and Social Security
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Portfolio diversification is the most fundamental concept of risk management. The allocation of financial resources in stocks, bonds, riskless, assets, oil and other assets determine the expected return and risk of a portfolio. Taking account of covariances and expected returns, investors can create a diversified portfolio that maximizes expected return for a given level of risk. An important mission of financial institutions is to provide portfolio-diversification services.
00:00 – Chapter 1. Introduction
02:37 – Chapter 2. Evaluation of Efficient Portfolio Frontiers
26:59 – Chapter 3. The Significance of Portfolio Diversification
38:43 – Chapter 4. The Tangency Portfolio and the Mutual Fund Theory
51:46 – Chapter 5. The Capital Asset Pricing Model
59:09 – Chapter 6. Implications of the Equity Premium and Conclusion
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Insurance provides significant risk management to a broad public, and is an essential tool for promoting human welfare. By pooling large numbers of independent or low-correlated risks, insurance providers can minimize overall risk. The risk management is tailored to individual circumstances and reflects centuries of insurance industry experience with real risks and with moral hazard and selection bias issues. Probability theory and statistical tools help to explain how insurance companies use risk pooling to minimize overall risk. Innovation and government regulation have played important roles in the formation and oversight of insurance institutions.
00:00 – Chapter 1. Circumventing Selection Bias in the Equity Premium Puzzle
10:13 – Chapter 2. Politics in the Stock Market and Modern Mutual Funds
19:43 – Chapter 3. The Intuition behind Insurance
34:54 – Chapter 4. Multiline, Monoline, and P&C Insurances
43:52 – Chapter 5. The Advent and Development of the Insurance Industry
56:06 – Chapter 6. Government and NAIC Regulation of Insurance
01:05:14 – Chapter 7. Problems with Insurance Companies Today
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Several theories in finance relate to stock price analysis and prediction. The efficient markets hypothesis states that stock prices for publicly-traded companies reflect all available information. Prices adjust to new information instantaneously, so it is impossible to “beat the market.” Furthermore, the random walk theory asserts that changes in stock prices arise only from unanticipated new information, and so it is impossible to predict the direction of stock prices. Using statistical tools, we can attempt to test the hypotheses and to predict future stock prices. These tests show that efficient markets theory is a half-truth: it is difficult but not impossible for some people to beat the market.
00:00 – Chapter 1. Last Thoughts on Insurance and Catastrophe Bonds
06:28 – Chapter 2. Information Access and the Efficient Markets Hypothesis
20:00 – Chapter 3. Varying Degrees of Efficient Markets and No Dividends: The Case of First Federal Financial
41:44 – Chapter 4. The Random Walk Theory
51:30 – Chapter 5. The First Order Auto-regressive Model
56:59 – Chapter 6. Challenges in Forecasting the Market
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Behavioral Finance is a relatively recent revolution in finance that applies insights from all of the social sciences to finance. New decision-making models incorporate psychology and sociology, among other disciplines, to explain economic and financial phenomenon, such as erratic stock price variations. Psychological patterns such as overconfidence and perceived kinks in the value function seem to impact financial decision-making, but are not included in classical theories such as the Expected Utility Theory. Kahneman and Tversky’s Prospect Theory addresses such issues and sheds light on irrational deviations from traditional decision-making models.
00:00 – Chapter 1. What Is Behavioral Finance?
09:01 – Chapter 2. Market Volatility: Random, or Socially Influenced? A Present Value Analysis
19:58 – Chapter 3. Overconfidence: Its Ubiquity and Impact on Financial Markets
38:29 – Chapter 4. The Kahneman and Tversky Prospect Theory or, How People Make Choices
58:50 – Chapter 5. The Regret Theory and Fashion as a Measure of the Market
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Regulation of financial and securities markets is intended to protect investors while still enabling them to make personal investment decisions. Psychological phenomena, such as magical thinking, overconfidence, and representativeness heuristic can cause deviations from rational behavior and distort financial decision-making. However, regulation and regulatory bodies, such as the SEC, FDIC, and SIPC, most of which were created just after the Great Depression, are intended to help prevent the manipulation of investors’ psychological foibles and maintain trust in the markets so that a broad spectrum of investors will continue to participate.
00:00 – Chapter 1. Introduction
03:24 – Chapter 2. Human Errors in Financial Decision-Making
22:34 – Chapter 3. Why Regulation of Finance Is Necessary
27:51 – Chapter 4. The Rise of the Securities and Exchange Commission
39:18 – Chapter 5. Regulation of Private Investments and Hedge Funds
49:14 – Chapter 6. Nongovernmental Surveillance of Insider Trading and Accounting Regulation
59:45 – Chapter 7. Protections for the Individual Investor: the SIPC and the FDIC
01:10:38 – Chapter 8. Conclusion
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
David Swensen, Yale’s Chief Investment Officer and manager of the University’s endowment, discusses the tactics and tools that Yale and other endowments use to create long-term, positive investment returns. He emphasizes the importance of asset allocation and diversification and the limited effects of market timing and security selection. Also, the extraordinary returns of hedge funds, one of the more recent phenomena of portfolio management, should be looked at closely, with an eye for survivorship and back-fill biases.
00:00 – Chapter 1. Introduction: Changing Institutional Portfolio Management
03:59 – Chapter 2. Asset Allocation: The Power of Diversification
16:44 – Chapter 3. Balancing the Equity Bias into Sensible Diversification
20:48 – Chapter 4. The Emotional Pitfalls of Market Timing
32:58 – Chapter 5. Survivorship and Backfill Biases in Security Selection
43:17 – Chapter 6. Finding Value Investing Opportunities as an Active Manager
49:02 – Chapter 7. Yale’s Portfolio and Results
54:48 – Chapter 8. Questions on New Investments, Remaining Bullish, and Time Horizons
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
The markets for debt, both public and private far exceed the entire stock market in value and importance. The U.S. Treasury issues debt of various maturities through auctions, which are open only to authorized buyers. Corporations issue debt with investment banks as intermediaries. The interest rates are not set by the Treasury, the corporations or the investment bankers, but are determined by the market, reflecting economic forces about which there are a number of theories. The real and nominal rates and the coupons of a bond determine its price in the market. The term structure, which is the plot of yield-to-maturity against time-to-maturity indicates the value of time for points in the future. Forward rates are the future spot rates that can be calculated using today’s bond prices. Finally, indexed bonds, which are indexed to inflation, offer the safest asset of all and their price reveals a fundamental economic indicator, the real interest rate.
00:00 – Chapter 1. Introduction
04:25 – Chapter 2. The Discount and Investment Rates
19:12 – Chapter 3. The Bid-Ask Spread and Murdoch’s Wall Street Journal
29:17 – Chapter 4. Defining Bonds and the Pricing Formula
39:38 – Chapter 5. Derivation of the Term Structure of Interest Rates
52:34 – Chapter 6. Lord John Hicks’s Forward Rates: Derivation and Calculations
01:06:09 – Chapter 7. Inflation and Interest Rates
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
The stock market is the information center for the corporate sector. It represents individuals’ ownership in publicly-held corporations. Although corporations have a variety of stakeholders, the shareholders of a for-profit corporation are central since the company is ultimately responsible to them. Companies offer dividends, stock repurchases and stock dividends to give profits back to shareholders or to signal information. Companies can also take on debt to raise capital, creating leverage. The Modigliani-Miller theory of a company’s leverage in its simplest form implies the leverage ratio doesn’t matter, but including bankruptcy costs and tax effects give us a positive theory of the ratio.
00:00 – Chapter 1. Introduction
04:24 – Chapter 2. The Corporation as a “Person”
14:02 – Chapter 3. Shares, Dilutions, and Stock Dividends
31:26 – Chapter 4. Distinguishing Earnings and Dividends, and Getting Money Out of Companies
42:38 – Chapter 5. Stock Repurchases and the Modigliani-Miller Proposition
57:13 – Chapter 6. Corporate Debt and Debt Irrelevance
01:07:58 – Chapter 7. The Lintner Model of Dividends
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Real Estate is the biggest asset class and of great importance for both individuals and institutional investors. An array of economic and psychological factors impact real estate investment decisions and the public has changing ideas of real estate as a profitable investment. People’s demand to buy a home by taking on long-term debt, called a mortgage, is often tied with the overall health of the economy and financial markets. In recessions, home buying tends to fall and the opposite holds in a strong economy. Commercial real estate, held indirectly by the public through partnerships and real estate investment trusts (REITs), is vulnerable to similar speculative activity. The most recent real estate boom illustrates the speculative nature of real estate, and its relation to financial and economic crises.
00:00 – Chapter 1. Introduction
02:17 – Chapter 2. The Development of Commercial Real Estate Assets, from DPP to REIT
17:34 – Chapter 3. The Evolution of Mortgages and Government Regulatory Measures
30:06 – Chapter 4. The Math of Mortgages, Fannie Mae, and Freddie Mac
41:50 – Chapter 5. Understanding the Current Housing Boom: Comparing Los Angeles and Milwaukee
57:37 – Chapter 6. Domestic and International Real Estate Booms
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Banks, which were first created in primitive form by goldsmiths hundreds of years ago, have evolved into central economic institutions that manage the allocation of resources, channel information about productive activities, and offer the public convenient investment vehicles. Although there are several types of banking institutions, including credit unions and Saving and Loan Associations, commercial banks are the largest and most important in the banking system. Banks are designed to address three significant problems in capital markets: adverse selection, moral hazard, and liquidity. Banks make money by borrowing long and lending short and use fractional reserves to lend more funds than are deposited. History has seen numerous problems in banks, including bank runs and insolvency. Government support and regulation, such as those implemented via the Basel Accord, as well as rating agencies help to ensure that investors trust the banks with which they have relations.
00:00 – Chapter 1. On Andrew Redleaf: Reaping Rewards from Opportunities
11:06 – Chapter 2. The Origin of Banks, from Goldsmiths to Commercial Banks
25:29 – Chapter 3. Why Banks Exist: On Adverse Selection, Moral Hazard and Liquidity
37:15 – Chapter 4. Rating Agencies: Do They Work?
44:08 – Chapter 5. The Ongoing Fragility of Banks and Structures of Bank Regulation
58:17 – Chapter 6. The Subprime Crisis in the U.S. and in Europe
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Andrew Redleaf, a Yale graduate and manager of Whitebox Advisors, a hedge fund, discusses his experience with financial markets. He addresses one of the fundamental questions in finance–whether or not markets are efficient–and concludes that although they don’t seem to be efficient, beating the market is very difficult. Mr. Redleaf discusses his thoughts about psychological barriers that make markets inefficient. He also comments on his beliefs regarding risk management and how people are compensated for mitigating risks, rather than for taking on risk as is often perceived. He ends by answering several questions from students.
00:00 – Chapter 1. The Markets Are Not Efficient
10:15 – Chapter 2. Psychological Factors of Market Inefficiency
25:57 – Chapter 3. Rewards Are for Risk-Mitigating, Not Risk-Taking
33:14 – Chapter 4. Issues in the Current U.S. and Global Economies
43:41 – Chapter 5. Questions: Cash and Bonds as Default Investments
01:04:35 – Chapter 6. Speculating on Backdated Options
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Mr. Carl Icahn, a prominent activist investor in corporate America, talks about his career and how he became interested in finance and involved in shareholder activism. He discusses his thoughts about today’s economy and American businesses and their inherent threats and opportunities. He believes that the biggest challenge facing corporate America is weak management and that today’s CEOs, with exceptions, might not be the most capable of leading global companies. He sees opportunities for current, intelligent college students to succeed in the corporate world if they work hard and can identify valuable business pursuits.
00:00 – Chapter 1. Carl Icahn: A Self-Introduction
06:10 – Chapter 2. An Anti-Darwinian Corporate America
19:56 – Chapter 3. Questions: Personal Motivation and Inspiration
29:21 – Chapter 4. Questions: Activist Investing in the Real World
38:53 – Chapter 5. Questions: Sensing Potential in Poorly Managed Companies
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Central Banks, originally created as bankers’ banks, implement monetary policy using their leverage over the supply of money and credit standards. Since the Bank of England was founded in 1694, through the gold standard which lasted until the 1930s, and into modern times, central banks have pursued monetary policy to stabilize the banking system. Central banks monitor currency flows and inflation, acting when crises, such as bank runs, emerged. More recently, central banks have taken an increasingly expansive role in stabilizing economic fluctuations. In the yet to be confirmed current recession, the Federal Reserve has used open market operations and innovative financial arrangements to try to forestall the recession and bail out failing financial institutions.
00:00 – Chapter 1. Introduction: Thoughts on Icahn’s Talk
04:49 – Chapter 2. The Gold Standard and the Earliest Central Bank
15:11 – Chapter 3. The Rise of the U.S. Federal Reserve System
25:30 – Chapter 4. The Abandonment of the Gold Standard and Adoption of Central Bank Autonomy
36:30 – Chapter 5. The Federal Funds Rate and Discount Rate
45:00 – Chapter 6. The Fed’s Innovations against U.S. and Global Stagflation
01:00:47 – Chapter 7. A Trace though Recent Recessions and Conclusion
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
First, Professor Shiller discusses today’s changing financial system and recent market stabilization reform introduced by U.S. Treasury Secretary Henry Paulson. The financial system is inherently unstable and would benefit from more surveillance, particularly for consumer protection issues, given the recent subprime mortgage crisis. Although this particular reform might not be successful, more regulators and policymakers are talking about changing the stabilization system and will likely alter the role of the Fed in the future.
Second, Professor Shiller introduces the mechanics and role of investment banking. Investment banks underwrite securities and arrange for the issue of stocks and bonds by corporations. Corporations work with investment banks to navigate the Securities and Exchange Commission requirements for issuing securities. The banks then take on a “bought deal” or “best efforts deal” and help the corporation to find a market for the securities. Investment banking depends on the reputation of its bankers and, as we have seen recently, can be destroyed by rumors about the bank’s insolvency.
00:00 – Chapter 1. The Paulson Proposal: Opportunities for Stabilization and Surveillance
13:45 – Chapter 2. The Fed as a Market Stability Regulator and News Media Bias
23:31 – Chapter 3. What Is Investment Banking? A Historical Glimpse
47:47 – Chapter 4. Investment Banks’ Underwriting Process and the Importance of Reputation
01:05:40 – Chapter 5. The Investment Banker as the Manager of a Security
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Most people are not very good at dealing in financial markets. Professional money managers, such as financial advisors and financial planners, assist individuals in matters of personal finance. FINRA and the SEC monitor the activities of these managers in order to protect individual investors. Mutual funds, exchange traded funds also exist to assist individual investments, and pension funds provide further services. These investment institutions help people to put money in diversified portfolios and, in some cases, reap some tax benefits for funding their retirement income.
00:00 – Chapter 1. Introduction
04:01 – Chapter 2. Financial Advisors and Financial Planners
15:20 – Chapter 3. Assets of U.S. Households and Nonprofits
24:09 – Chapter 4. Mutual Funds, ETFs, and Spendthrift Funds
41:53 – Chapter 5. Pension Funds: A History
54:53 – Chapter 6. Modern Innovations for Pension Management: ERISA and Beyond
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
The exchanges in which stocks and other securities are traded serve an important function in finance. They bring together people interested in buying and selling securities in order to create a universal price. Brokers and dealers are also an important part of the system, their methods and standards are ultimately behind the success of the exchanges. Many information innovations have advanced the functioning of exchanges, going all the way back to the ticker machine, which was created to communicate the price of securities at a point in time to all interested parties. Electronic Communication Networks and automatic exchanges, more generally, have significantly impacted the exchange of securities and few exchanges still have physical trading floors.
00:00 – Chapter 1. Introduction: The Broker and the Dealer
15:11 – Chapter 2. Exchanges in the United States
24:02 – Chapter 3. From Ticker Tapes to ECNs: The Impact of Technology
42:12 – Chapter 4. Action on the “Floor” of the Stock Exchange
01:01:46 – Chapter 5. The Dealer’s Life and the Gambler’s Ruin Problem
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Stephen Schwarzman, Co-Founder of Blackstone Group, a private equity firm, speaks about his experience in the industry. He discusses his thoughts on global finance, particularly at such an interesting and challenging point in the history of financial institutions. Although the near future might be rough for the United States and economies around the globe, capital does tend to come back and regulators are busy figuring out how best to put safeguards on the system. He also offers career advice and mentions some of the surprises he came across upon entering the world of finance.
00:00 – Chapter 1. Introduction: Stephen Schwarzman’s Profile
03:00 – Chapter 2. In His Own Words: Early Discoveries in the Financial Market
12:36 – Chapter 3. Real Estate Assets Performance with Blackstone
17:16 – Chapter 4. Deconstructing the Subprime Crisis and “Jars of American SARS”
26:53 – Chapter 5. A Recession in the Aftermath: A New Financial World
34:49 – Chapter 6. Questions: Successes and Setbacks
44:54 – Chapter 7. Personal Lessons and Insights from the Financial World
55:44 – Chapter 8. Questions: Dealing with Failure and the Future of Investing and Private Equity
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Futures markets were started in Osaka, Japan in the 1600s to create an authoritative and meaningful market price for agricultural products, using standardized contracts. Since then, futures markets have been copied around the world to allow the hedging various future risks, financial and other. In the United States, the Chicago Mercantile Exchange and the Chicago Board of Trade have been the most popular futures trading markets. Although futures markets are changing and becoming more electronic, they are still important risk management tools for farmers and present financial opportunities for all manner of hedgers and arbitrageurs.
00:00 – Chapter 1. Introduction: Thoughts on Guest Speakers
07:23 – Chapter 2. From Osaka’s Rice Warehouses: The Development of the Forward and Futures Market
24:47 – Chapter 3. Forward Contracts for Currency Exchange and Interest Rates
35:30 – Chapter 4. The Completely Financial Futures Market
51:44 – Chapter 5. A Case Study of Futures: The Price of Wheat and the Question of Storage
01:00:47 – Chapter 6. Backwardation and Spot Premiums
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Futures markets have expanded far beyond their initial application to farmer’s planting and harvest cycles. These markets now allow investors and traders to set prices for a broad spectrum of assets and for a whole term structure stretching into the distant future. Some of these markets are often priced according to simple fair-value formulae, others are not. Futures markets can be in backwardation, where the future price is lower than the present, spot price. They can also be in contango, where the price rises with maturity and is higher in the future than it is today. The S&P/Case-Shiller Home Price Index is a recent invention that has transferred the mechanics of futures markets to the prices of single-family homes in ten real estate markets, in an effort to create a national market for residential real estate.
00:00 – Chapter 1. Introduction: On the Extinction of Ticker Tapes
01:49 – Chapter 2. How Futures Markets Included Financial Securities
18:06 – Chapter 3. Fair Value and the Influences of Contango and Backwardation
28:57 – Chapter 4. Volatility in the Oil Futures Market
41:31 – Chapter 5. Why Is the Price of Oil so High? On International Development, Nationalization, and World Politics
52:30 – Chapter 6. The Development of a Home Price Futures Market
01:08:01 – Chapter 7. The S&P Case-Shiller Home Price Index and Conclusion
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Options introduce an essential nonlineary into portfolio management. They are contracts between buyers and writers, who agree on exercise prices and dates at which the buyer can buy or sell the underlying (such as a stock). Options are priced based on the price and volatility of the underlying asset as well as the duration of the option contract. The Black-Scholes options pricing model is one of the most famous equations in finance and offers a useful first approximation for prices for option contracts. Options exchanges and futures exchanges both are involved in creating a liquid and transparent market for options. Options are not just for stocks; they are also important for other asset classes, such as real estate.
00:00 – Chapter 1. Options Vocabulary and the 1720 Stock Market Crash
14:58 – Chapter 2. The Standardization and Logic of Options: Options Exchanges
27:57 – Chapter 3. The Put-Call Parity Relation
36:32 – Chapter 4. Pricing an Option: The Black-Scholes Formula
51:35 – Chapter 5. Accounting for Volatility in the Black-Scholes Formula
01:00:08 – Chapter 6. Options on Home Prices as Risk Management
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Professor Shiller, in his final lecture, reviews some of the most important tools for individual risk management. Significant inequality in domestic and international communities has created a need for social insurance programs, such as those created in Germany in the late 1800s. The tax system, bankruptcy laws, and government insurance programs are used to manage risk of personal wealth. However, each of these inventions must take account of psychological factors, such as moral hazard, in order to be effective without eliminating incentives to participate in the workforce, or other negative side effects. With regard to careers, including those in finance, young people should frame decisions with morality and purpose in mind, and with a broad perspective of both.
00:00 – Chapter 1. Sources of Financial Inequality
10:24 – Chapter 2. A Call for Social Insurance: The Government’s Role in Risk Management
25:50 – Chapter 3. Social Security in the United States
34:32 – Chapter 4. Bankruptcy as a Risk Management Device
50:30 – Chapter 5. Balancing Morality and Psychology: Career Advice for Young Adults
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
Professor Summers, former U. S. Treasury Secretary and former President of Harvard University, in this the first of two lectures in honor of former Yale Professor and Council of Economic Advisors chairman Arthur Okun, offers thoughts on the role of monetary policy in economic fluctuations, past and present. In the “Okun period,” ending about when Okun died in 1980, the monetary authorities were very much involved in actually creating economic contractions. Inflation would repeatedly get out of control, the Fed would hit the brakes, and the economy would slow. But, that is not the story of the economic cycles of the last two decades. Recent economic cycles appear to be connected with factors endogenous to the financial system, such as bubbles or cycles of complacency among lending institutions. Summers argues that to understand the financial markets and the economy, we must consider models of multiple equilibria, such as bank run models, where a change in confidence may shift the economy drastically without any change in fundamentals.
00:00 – Chapter 1. A Profile of Lawrence Summers, Memories of Art Okun
12:48 – Chapter 2. Okun’s Concerns on Stable Growth, Inflation, and Cyclical Fluctuations
29:05 – Chapter 3. The Interconnectedness of Modern Financial Crises Worldwide
40:05 – Chapter 4. The Bank Run Metaphor in Non-Bank Financial Crises
58:38 – Chapter 5. Behavioral Finance: Reasons for Positive Feedback
01:15:37 – Chapter 6. Summary and Questions on Government Interventions and Moral Hazard
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Financial Markets (ECON 252)
In the second of his two lectures in honor of Arthur Okun, Professor Summers points out that real interest rates have been very low in the current subprime crisis. This indicates that the shock to the economy was more a financial breakdown shock than a disinflation shock. But financial breakdown shocks are not necessarily very harmful to the economy, so long as financial intermediation capital is not destroyed. In a financial crisis like the present one, financial firms are likely to take the step of decreasing their leverage, often by contracting loans, which creates its own risks for the economy. Regulators should place pressure on financial institutions to raise their capital and should intervene in near foreclosure situations, but should not attempt to support housing prices.
00:00 – Chapter 1. Introduction and Recap
02:51 – Chapter 2. Understanding Recessions in Terms of the IS/LM Model
12:35 – Chapter 3. Financial Intermediation Capital: Essential for Economic Growth
23:08 – Chapter 4. U.S. Fiscal Policy Challenges and Objectives
36:44 – Chapter 5. Caution against Overdependence on Monetary Policy and the Federal Funds Rate
48:12 – Chapter 6. Obstacles in Introducing New Capital into and Increasing Direct Regulation of Financial Markets
57:50 – Chapter 7. Fiscal Policy Coordination in the International Context: Observations and Suggestions
01:06:56 – Chapter 8. Q&A: From Paulson’s Proposal to Regulation of Lending and Leverage
Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses
This course was recorded in Spring 2008.
Lecture 6: Vision 2 Instructor: John Gabrieli View the complete course: http://ocw.mit.edu/9-00SCS11 License: Creative Commons BY-NC-SA
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