SemesterFall Semester, 2023
DepartmentPhD Program of Finance, First Year
Course NameSeminar on Financial Theory (I): Discrete Time Finance
Course TypeRequired
Course Objective
Course Description
Course Schedule

  1. Preferences, Expected Utility Representation

    * H-L Chapter 1

    * Ingersoll Chapter 1

    * Campbell Chapter 1


  2. Stochastic Dominance

    * H-L Chapter 2

    * Campbell Chap 1

    * Ingersoll Chapter 5


  3. Mean Variance Analysis – The Individual’s Problem

    * H-L Chapter 3

    * Campbell Chap 2

    * Ingersoll Chapter 3


  4. CAPM

    * H-L Chapter 4

    * Campbell Chap 3

    * Ingersoll Chapter 4

    * Merton, Robert C, 1987, A Simple Model of Capital Market Equilibrium with Incomplete Information, Journal of Finance 42, 483-510.

    # Fama, Eugene F., and James D. MacBeth, 1973, Risk, Return, and Equilibrium: Empirical Tests, Journal of Political Economy 81, 607-636.

    * Chchrane Chap 12.3

    # Shanken, Jay and Guofu Zhou, 2007, Estimating and testing beta pricing models: Alternative methods and their performance in simulations, Journal of Financial Economics 84, 40-86.


  5. Arrow-Debreu Securities and General Equilibrium Consideration

    * H-L Chapter 5

    * Ingersoll Chapters 2, 8, 9


  6. APT

    * Ingersoll Chap 7

    * Campbell Chap 3

    * Cochrane Chap 9.4 (will be discussed later)

    * Ross, Stephen A, 1976, The Arbitrage Theory of Capital Asset Pricing, Journal of Economic Theory 13, 341-60.

    * Huberman, Gur, 1982, A Simple Approach to Arbitrage Pricing Theory, Journal of Economic Theory 28, 183-91.

    * Huberman, Gur, and Zhenyu Wang, 2005, Arbitrage Pricing Theory, in S.N. Durlauf, and L.E. Blume, eds.: The New Palgrave Dictionary of Economics, forthcoming (Palgrave Macmillan).


  7. Introduction to Dynamic Models and Rational Expectations: Lucas Trees

    * Lucas, Robert E, Jr, 1978, Asset Prices in an Exchange Economy, Econometrica 46, 1429-45.

    * Campbell Chap 4, Chap 6

    * Cochrane Chap 1, Chap 4

    * Hansen, Lars Peter, and Kenneth J. Singleton, 1982, Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models, Econometrica 50, 1269-86.


  8. Factor Pricing Models

    * Cochrane Chap 6, Chap 9

    * Campbell Chap 3

    * Handbook of Finance 1B, Chap 12

    * Fama, Eugene F., and Kenneth R. French, 1992, The Cross-Section of Expected Stock Returns, Journal of Finance 47, 427-65.

    * Fama, Eugene F., and Kenneth R. French, 1993, Common Risk Factors in the Returns on Stock and Bonds, Journal of Financial Economics 33, 3-56.

    * Fama, Eugene F., and Kenneth R. French, 1995, Size and Book-to-Market Factors in Earnings and Returns, Journal of Finance 50, 131-55.

    * Fama, Eugene F, and Kenneth R French, 2015, A five-factor asset pricing model, Journal of Financial Economics 116, 1-22.

    * Ang, Andrew, Robert J. Hodrick, Yuhang Xing, and Xiaoyan Zhang, 2006, The Cross-Section of Volatility and Expected Returns, Journal of Finance 61, 259-99.

    * Jegadeesh, Narasimhan, and Sheridan Titman, 1993, Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency, Journal of Finance 48, 65-91.

    * Pastor, Lubos, and Robert F. Stambaugh, 2003, Liquidity Risk and Expected Stock Returns, Journal of Political Economy 111, 642-685.

    # Goyenko, Ruslan Y., Craig W. Holden, and Charles A. Trzcinka, 2009, Do liquidity measures measure liquidity?, Journal of Financial Economics 92 2, 153-81.

    # Harvey, Campbell R., Yan Liu, and Heqing Zhu, 2016, … and the cross-section of expected returns, The Review of Financial Studies 29, 5-68.

    # Breeden, Douglas T., Michael R. Gibbons, and Robert H. Litzenberger, 1989, Empirical test of the consumption-oriented capm, The Journal of Finance 44, 231-262.

  9. The Equity Premium Puzzle

    * Mehra, Rajnish, and Edward C Prescott, 1985, The Equity Premium: A Puzzle, Journal of Monetary Economics 15, 145-61.

    * Rietz, Thomas A., 1988, The Equity Risk Premium: A Solution, Journal of Monetary Economics 22, 117-31.

    Mehra, Rajnish, and Edward C. Prescott, 1988, The Equity Risk Premium: A Solution?, Journal of Monetary Economics 22, 133-36.

    Barro, Robert J., 2006, Rare Disasters and Asset Markets in the Twentieth Century, Quarterly Journal of Economics 121, 823-66.

    * Handbook of Finance 1B, Chap 14

  10. Introduction to Derivatives (subject to time availability)

    * Ingersoll Chapter 14

    * Cox and Rubinstein, Chapter 2, 4.

  11. Black-Scholes Formula (subject to time availability)

    * Cox and Rubinstein, Chapter 5.

    * Black, Fischer, and Myron S. Scholes, 1973, The Pricing of Options and Corporate Liabilities, Journal of Political Economy 81, 637-54.

Teaching Methods
Teaching Assistant



Final Exam (95%) and Class Participation (5%)

Textbook & Reference

Cochrane John H 2005. Asset pricing (Princeton University Press Revised edition. Princeton and Oxford). 

Huang Chi fu and Robert H Litzenberger 1988. Foundations for financial economics (North-Holland; distributed in the U.S. and Canada by Elsevier Science N.Y. New York; Amsterdam and London). 

Campbell, John Y. 2018. Financial Decisions and Markets (Princeton University Press).

Ingersoll Jonathan E Jr 1987. Theory of Financial Decision Making (Littlefield Adams; Rowman and Littlefield Rowman and Littlefield Studies in Financial Economics Totowa N.J.). 

Campbell John Y Andrew W Lo and A Craig MacKinlay 1997. The Econometrics of Financial Markets (Princeton University Press Princeton). 

Constantinides George M Milton Harris and Rene Stulz 2003. Handbook of the economics of finance. Volume 1A. Corporate finance (Elsevier North Holland Handbooks in Economics vol. 21. Amsterdam; London and New York). 

Constantinides George M Milton Harris and Rene Stulz 2003. Handbook of the economics of finance. Volume 1B. Financial markets and asset pricing (Elsevier North Holland Handbooks in Economics vol. 21. Amsterdam; London and New York). 

Cox John C. and Mark Rubinstein 1985. Options Market (Prentice-Hall Inc. Englewood Clifs New Jersey). 

Urls about Course

Finance Theory I Syllabus.pdf