Phil Dybvig dybvig@wustl.edu (instructor)
Shreye Mirani shreye.mirani@wustl.edu (TA)
Yudong Rao rao.y@wustl.edu (TA)
Prerequisites FIN 524 and FIN 538 or permission of the instructor. This course uses the specialized math (especially Ito calculus) covered in FIN 538. As in most quantitative courses, students with the strongest math backgrounds will breeze through most easily. This is the most difficult quantitative course for the MSFQ students.
Course materials
Section 1: http://dybfin.wustl.edu/teaching/mathfin25-1
Section 2: http://dybfin.wustl.edu/teaching/mathfin25-2
Tools and Concepts for Financial Decision-making Analyzing choice problems is a useful tool for making financial decisions. Choice theory, often in conjunction with information from data, is especially useful in dynamic environments, since we can build the changing environment into the analysis. This course focuses on dynamic programming tools to analyze decisions over time, using applications from investments. We will study tools for solving for optimal decisions, and the conceptual framework is also very useful for thinking about decisions even if it is hard to write down a fully specified optimization model.
Learning goals Mastery of a set of tools for optimal investments that can also be used for other decision problems in industry, and a conceptual understanding of dynamic decision theory and its applications.
Organization of the course Lectures, review sessions, problem sets, and a final exam.
Course Requirements Grades will be based 100% on the final exam. I will give a modest amount of extra credit for good suggestions on how to improve the course. Understandably, job search or other obligations may occasionally conflict with class. It is your responsibility to find out from your classmates what you miss when you are absent.
Final Exam The final exam will be a written exam, held in person unless we have to go online. The exam is closed-book with no notes or electronics (phones, calculators, laptops, iPod, etc.). If you must miss the exam, please tell me as early as possible. If you miss the exam, I will substitute an oral exam in Zoom.
Teaching assistance Teaching assistance will be provided by Shreye Mirani shreye.mirani@wustl.edu and Yudong Rao rao.y@wustl.edu. Shreye is a Finance PhD student working on corporate finance and macro finance, with current work on the impact of fiscal policy on financial markets. Yudong is an Economics PhD student working on banking and international finance, with current research on the role of the Federal Home Loan Banks in the funding of banks. The TAs are available to give you any help you need to master the material. Of course, you can also get help from me dybvig@wustl.edu.
Course materials Course materials include slides, problem sets with solutions, and practice exams with solutions. Slides cover the material in the course. These slides will not be used in the lectures, which will use a whiteboard format in person (or perhaps occasionally in Zoom). Problem sets give you practice using the tools in the course, and solutions are provided. The TAs will also go through the solutions in a help session. Practice exams and solutions will be posted later. Course materials can be found at the links at the top of this syllabus. There will not be any textbook or packet.
Integrity and Professionalism Students are expected to conform to the Olin School's Honor Code and Code of Professionalism. I will report any violations to the Disciplinary Committee (with considerable sadness but a strong sense of duty). It is easy to follow the rules in this course, but it seems that every year there are a few students who have to delay graduation to retake the course.
About me I was previously a tenured full professor at Yale, and I came to Wash U in 1988 in the hope of building a top finance group, which we have done. I'm best known outside of academic finance for the 2022 Nobel Memorial Prize in Economic Sciences, which I was awarded alongside Ben Bernanke and my co-author Douglas W. Diamond. More information on me is in the chatty blurb at http://dybfin.wustl.edu/misc/about.html or in my vitae at http://dybfin.wustl.edu/misc/vitae.html.
Course Description This course focuses on continuous-time optimal portfolio choice and equilibrium asset pricing. Students will first learn how to solve optimal portfolio selection problems with both the Hamilton-Jacob-Bellman equation approach and the martingale approach. Then we will move on to solve for the equilibrium interest rate and expected return and volatility for stocks. The course is mainly designed for students in the Masters in Finance program who aim at quantitative positions in investment banks, hedge funds and consulting firms.
Schedule:
Section 1 classes: in person, Simon Hall 113, Tuesday-Thursday 1:00-2:20 PM, Jan 14, 2025 through February 20, 2025
Section 2 classes: in person, Simon Hall 113, Tuesday-Thursday 2:30-3:50 PM, Jan 14, 2025 through February 20, 2025
TA sessions: Simon Hall 112, Fridays 12:30-1:30PM, Jan 24 through February 21, 2025 (tentative)
Final exam (both sections): Sunday, March 2, 2025, 4:00-7:00 PM, SH 110, 112, and 113.
Additional resources from the university and university-wide guidelines The university has a number of resources that can help you, see https://bpb-us-w2.wpmucdn.com/sites.wustl.edu/dist/f/4662/files/2024/12/Syllabus-Resources-and-Template-Language-Danforth_SP2025_Final.pdf. Topics include sexual assault and other harassment, disability resources, military service leave, preferred name and personal pronouns, emergency preparedness, academic integrity, unauthorized recording and distribution of classroom activities and course materials, COVID-19 health and safety protocols, bias reporting, career engagement, psychological services, writing help, learning support, voting, and libraries. On a personal note, I would add that the university officials have a duty to do what is best for the university and also have their own agendas. If you are involved in a serious dispute, I recommend retaining your own legal representation to protect your rights.