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Lesson 2 of 25

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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Why Finance?

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Computing Equilibrium

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Financial Theory - Video Series

25 lessons

Lessons

1
Why Finance?
2
Utilities, Endowments, and Equilibrium
3
Computing Equilibrium
4
Efficiency, Assets, and Time
5
Present Value Prices and the Real Rate of Interest
6
Irving Fisher's Impatience Theory of Interest
7
Shakespeare's Merchant of Venice and Collateral, Present Value and the Vocabulary of Finance
8
How a Long-Lived Institution Figures an Annual Budget Yield
9
Yield Curve Arbitrage
10
Dynamic Present Value
11
Financial Implications of US Social Security System
12
Overlapping Generations Models of the Economy
13
Will the Stock Market Decline when the Baby Boomers Retire?
14
Quantifying Uncertainty and Risk
15
Uncertainty and the Rational Expectations Hypothesis
16
Backward Induction and Optimal Stopping Times
17
Callable Bonds and the Mortgage Prepayment Option
18
Modeling Mortgage Prepayments and Valuing Mortgages
19
Dynamic Hedging
20
Dynamic Hedging and Average Life
21
Risk Aversion and CAPM
22
The Mutual Fund Theorem and Covariance Pricing Theorems
23
Risk, Return, and Social Security
24
Leverage Cycle and the Subprime Mortgage Crisis
25
Shadow Banking: Parallel and Growing?
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