NationMaster - Encyclopedia: Financial economics

Financial economics is the branch of economics concerned with resource allocation over time. It is further distinguished from other branches of economics by its "concentration on monetary activities", in which "money of one type or another is likely to appear on both sides of a trade" [1]. Face-to-face trading interactions on the New York Stock Exchange trading floor. ...

The questions addressed by the discipline are typically framed in terms of "time, uncertainty, options and information" [2].

Lets talk about risk control strategies, anyone with more information and willing to share, please do so. ... In finance options are types of derivative contracts, including call options and put options, where the future payoffs to the buyer and seller of the contract are determined by the price of another security, such as a common stock. ... Perfect information is a term used in economics and game theory to describe a state of complete knowledge about the actions of other players that is instantaneously updated as new information arises. ...

Subject matter

Given its scope, as above, financial economics tends to deal with the workings of financial markets, such as the stock market, and the financing of companies, and includes the following subject areas: Budgeting, saving, investing, borrowing, lending, insuring, hedging, diversifying, and asset management. Because the future is never known with certainty, a central concern of financial economics is the impact of uncertainty on resource allocation. In finance, financial markets facilitate: The raising of capital (in the capital markets); The transfer of risk (in the derivatives markets); and International trade (in the currency markets). ... A stock market is a market for the trading of company stock, and derivatives of same; both of these are securities listed on a stock exchange as well as those only traded privately. ... Finance studies and addresses the ways in which individuals, businesses, and organizations raise, allocate, and use monetary resources over time, taking into account the risks entailed in their projects. ... For other uses, see Corporation (disambiguation). ...

This article is about the business definition. ... For other uses, see Stock (disambiguation). ... For alternative meanings, see bond (a disambiguation page). ... For other uses, see Debt (disambiguation). ... Invest redirects here. ...

Assumptions

Financial economics is based on many assumptions - chief amongst these, that financial decision makers are rational (see Homo economicus; Efficient market hypothesis). However, recently, researchers in Experimental economics and Experimental finance have challenged this assumption empirically. Further, these assumptions are challenged - theoretically - by Behavioral finance, a discipline primarily concerned with the rationality, or lack thereof, of economic agents. This article is being considered for deletion in accordance with Wikipedias deletion policy. ... Homo economicus, or Economic man, is the concept in some economic theories of man (that is, a human) as a rational and self-interested actor who desires wealth, avoids unnecessary labor, and has the ability to make judgments towards those ends. ... In finance, the efficient market hypothesis (EMH) asserts that financial markets are informationally efficient, or that prices on traded assets, e. ... Experimental economics is the use of experimental methods to evaluate theoretical predictions of economic behaviour. ... The goals of experimental finance are to establish different market settings and environments to observe experimentally and analyze agents behavior and the resulting characteristics of trading flows, information diffusion and aggregation, price setting mechanism and returns processes. ... A central concept in science and the scientific method is that all evidence must be empirical, or empirically based, that is, dependent on evidence or consequences that are observable by the senses. ... In mathematics, theory is used informally to refer to a body of knowledge about mathematics. ... Economics Nobel Laureate Daniel Kahneman, was an important figure in the development of behavioral finance and economics and continues to write extensively in the field. ...

Other common assumptions include market prices following a random walk, or asset returns being normally distributed. Empirical evidence suggests that these assumptions may not hold, and in practice, traders and analysts, and particularly risk managers, frequently modify the "standard models". Example of eight random walks in one dimension starting at 0. ... The normal distribution, also called the Gaussian distribution, is an important family of continuous probability distributions, applicable in many fields. ... Financial risk management is the practice of creating economic value in a firm by using financial instruments to manage exposure to risk, particularly credit and market risk. ...

Important concepts

The risk-free interest rate is the interest rate that it is assumed can be obtained by investing in financial instruments with no risk. ... The time value of money is the premise that an investor prefers to receive a payment of a fixed amount of money today, rather than an equal amount in the future, all else being equal. ... The Fisher separation theorem in economics asserts that the objective of a firm will be the maximization of its present value, regardless of the preferences of its owners. ... The Modigliani-Miller theorem (of Franco Modigliani, Merton Miller) forms the basis for modern thinking on capital structure. ... In economics and finance, arbitrage is the practice of taking advantage of a price differential between two or more markets: a combination of matching deals are struck that capitalize upon the imbalance, the profit being the difference between the market prices. ... Rational pricing is the assumption in financial economics that asset prices (and hence asset pricing models) will reflect the arbitrage-free price of the asset as any deviation from this price will be arbitraged away. This assumption is useful in pricing fixed income securities, particularly bonds, and is fundamental to... Efficient fuked up market theory is a field of economics which seeks to explain the workings of capital markets such as the stock market. ... Capital Market Line Modern portfolio theory (MPT) proposes how rational investors will use diversification to optimize their portfolios, and how a risky asset should be priced. ... The US dollar yield curve as of 9 February 2005. ... Homo economicus, or Economic man, is the concept in some economic theories of man (that is, a human) as a rational and self-interested actor who desires wealth, avoids unnecessary labor, and has the ability to make judgments towards those ends. ... The Arrow-Debreu model, also referred to as the Arrow-Debreu-McKenzie model (ADM model) is the central model in the General (Economic) Equilibrium Theory and often used as a general reference for other microeconomic models. ...

Finance journals

The Journal of Finance is an academic journal published by the the American Finance Association (AFA) since 1946. ... The Review of Financial Studies is an academic journal published by the Yale School of Management since 1988. ... The Journal of Financial Economics or JFE, is a publication in the theory of financial economics. ... Econometrica is a prestigious academic journal of economics, publishing articles in not only econometrics but in many areas of economics. ... The goal of the Financial Analysts Journal is to advance the knowledge and understanding of the practice of investment management through the publication of high-quality, practitioner-relevant research. ... The Journal Of Investment Management (JOIM) is a high quality, fully refereed publication, which bridges the theory and practice of investment management. ...

See also

Finance studies and addresses the ways in which individuals, businesses, and organizations raise, allocate, and use monetary resources over time, taking into account the risks entailed in their projects. ... Value investing is a style of investment strategy from the so-called Graham & Dodd School. ... Mathematical finance is the branch of applied mathematics concerned with the financial markets. ... Financial engineering is the application of science-based mathematical and statistical models to make a better decision about managing financial risks, investing, borrowing, lending, and saving. ... Mathematical economics is the sub-field of economics that explores the mathematical aspects of economic systems. ... A diagram of the IS/LM model In economics, a model is a theoretical construct that represents economic processes by a set of variables and a set of logical and quantitative relationships between them. ... Experimental economics is the use of experimental methods to evaluate theoretical predictions of economic behaviour. ... The goals of experimental finance are to establish different market settings and environments to observe experimentally and analyze agents behavior and the resulting characteristics of trading flows, information diffusion and aggregation, price setting mechanism and returns processes. ... Economics Nobel Laureate Daniel Kahneman, was an important figure in the development of behavioral finance and economics and continues to write extensively in the field. ... The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel (in Swedish Sveriges Riksbanks pris i ekonomisk vetenskap till Alfred Nobels minne), is a prize awarded each year for outstanding intellectual contributions in the field of economics. ... This aims to be a complete list of the articles on economics. ... Topics in finance include: // Finance an overview Arbitrage Capital (economics) Capital asset pricing model Cash flow Cash flow matching Debt Default Consumer debt Debt consolidation Debt settlement Credit counseling Bankruptcy Debt diet Debt-snowball method Discounted cash flow Financial capital Funding Financial modeling Entrepreneur Entrepreneurship Fixed income analysis Gap financing... This is an alphabetical list of notable economists, that is, experts in the social science of economics. ...

External links and references

General William Forsyth Sharpe (born June 16, 1934) is Professor of Finance, Emeritus at Stanford Universitys Graduate School of Business and the winner of the 1990 Nobel Prize in Economics. ... Stanford GSB The Stanford Graduate School of Business (also known as Stanford Business School or Stanford GSB) is one of the professional schools of Stanford University, in Stanford, California. ... Mascot Beaver Affiliations University of London Russell Group EUA ACU CEMS APSIA Universities UK U8 Golden Triangle G5 Group Nobel laureates 14 Website http://www. ... Mark Rubinstein is the Paul Stephens Professor of Applied Investment Analysis at the Haas School of Business at the University of California, Berkeley. ... Eastern entrance The Walter A. Haas School of Business, better known as the Haas School of Business or simply Haas, is one of 14 schools and colleges at the University of California, Berkeley. ...

Category: Financial economics The New School is an institution of higher learning in New York City, located around Greenwich Village in Lower Manhattan. ... California State University, Northridge (also known as CSUN, Cal State Northridge, or C-Sun) is a public university in the San Fernando Valley, within the city limits of Los Angeles, California, USA. Part of the California State University system, CSUN was founded in 1958 as San Fernando Valley State College... Murray State University, located in the town of Murray in Kentuckys far-western Jackson Purchase in the United States, is an approximately 10,000-student, four-year public university. ... This article needs to be cleaned up to conform to a higher standard of quality. ... Finance studies and addresses the ways in which individuals, businesses, and organizations raise, allocate, and use monetary resources over time, taking into account the risks entailed in their projects. ... This article does not cite any references or sources. ... Investment management is the professional management of various securities (shares, bonds etc) assets (e. ... In financial economics, a financial institution acts as an agent that provides financial services for its clients. ... Personal finance is the application of the principles of finance to the monetary decisions of an individual or family unit. ... This article does not cite any references or sources. ... Mathematical finance is the branch of applied mathematics concerned with the financial markets. ... The goals of experimental finance are to establish different market settings and environments to observe experimentally and analyze agents behavior and the resulting characteristics of trading flows, information diffusion and aggregation, price setting mechanism and returns processes. ... Computational finance (also known as financial engineering) is a cross-disciplinary field which relies on mathematical finance, numerical methods and computer simulations to make trading, hedging and investment decisions, as well as facilitating the risk management of those decisions. ...

Contents

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