- Why Finance?
- Utilities, Endowments, and Equilibrium
- Computing Equilibrium
- Efficiency, Assets, and Time
- Present Value Prices and the Real Rate of Interest
- Irving Fisher's Impatience Theory of Interest
- Shakespeare's Merchant of Venice and Collateral, Present Value and the Vocabulary of Finance
- How a Long-Lived Institution Figures an Annual Budget Yield
- Yield Curve Arbitrage
- Dynamic Present Value
- Financial Implications of US Social Security System
- Overlapping Generations Models of the Economy
- Will the Stock Market Decline when the Baby Boomers Retire?
- Quantifying Uncertainty and Risk
- Uncertainty and the Rational Expectations Hypothesis
- Backward Induction and Optimal Stopping Times
- Callable Bonds and the Mortgage Prepayment Option
- Modeling Mortgage Prepayments and Valuing Mortgages
- Dynamic Hedging
- Dynamic Hedging and Average Life
- Risk Aversion and CAPM
- The Mutual Fund Theorem and Covariance Pricing Theorems
- Risk, Return, and Social Security
- Leverage Cycle and the Subprime Mortgage Crisis
- Shadow Banking: Parallel and Growing?
Utilities, Endowments, and Equilibrium
This lecture explains what an economic model is, and why it allows for counterfactual reasoning and often yields paradoxical conclusions. Typically, equilibrium is defined as the solution to a system of simultaneous equations. The most important economic model is that of supply and demand in one market, which was understood to some extent by the Ancient Greeks and even by Shakespeare. That model accurately fits the experiment from the last class, as well as many other markets, such as the Paris Bourse, online trading, the commodities pit, and a host of others. The modern theory of general economic equilibrium described in this lecture extends that model to continuous quantities and multiple commodities. It is the bedrock on which we will build the model of financial equilibrium in subsequent lectures.
Source: Open Yale Courses
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