Electives

This course develops a toolkit of advanced mathematical methods which are applied to analyze dynamic models of macroeconomics and finance. The first part focuses on deterministic models and introduces methods from dynamical systems theory, dynamic optimization theory, and functional analysis to analyze these models. Specific applications include the neoclassical growth model in discrete time and related models of economic growth. The second part discusses stochastic models and presents basic concepts from probability and integration theory and more advanced methods to describe the evolution and asymptotic behavior of stochastic processes in discrete time. The results are applied to study economic models of the business cycle with random perturbations such as the Real Business Cycle (RBC) model and New Keynesian models. The theoretical results will be illustrated and quantified by numerical simulations with PYTHON.

This advanced course analyzes differences in the economic systems, preferences, and outcomes between Europe and the US. Topics include the welfare state, taxation, labor markets, demographics, preferences for redistribution, migration, monetary and fiscal policy, and the educational system. We study the origins of potential differences, as well as their consequences for the lives of people. We explore macro- as well as microeconomic studies of both theoretical and empirical nature. The major goal of this course is to give students the opportunity to apply the knowledge and tools acquired in previous courses to a fascinating topic. Thus, the prerequisites are intermediate microeconomic and macroeconomic theory, statistics, and econometrics. When discussing the readings, we will focus not only on the content, but also on the methodology.

This course presents topics on the new area of Household Finance, on the interface between Macroeconomics and Finance. This is not only an active area of frontier academic research, but also interesting and useful to people working in the financial sector, including central banks. The broad overall theme of the topics presented is household wealth management, namely analysis of household demand for assets and for loans. The course should appeal to a wide range of students, from those interested in understanding household preferences regarding financial products that can be of use in financial sector jobs, to those who are more academically oriented and who want to study intertemporal portfolio selection in the face of labor income risk for which one cannot buy insurance. An explicit aim of the course is to stress the intuition behind the results and to provide students with basic understanding of key findings in recent, mostly empirical but also computational, research on household portfolios. The formal lectures will be supplemented by sections (two hours every two weeks), which will stress useful techniques and hands-on-practice in data analysis using the STATA econometric package, as well as ways to interpret empirical findings in portfolio research.

The course will consist of three parts.
In the first part we introduce basic concepts and theories of modern international macroeconomics, like the determination of the current account, international prices, and the role of international financial markets. The main framework of the analysis is the inter-temporal approach to the current account. We will start by deriving the current account equation for a small open economy with one good, one internationally traded asset in the deterministic case. We will therefore add uncertainty, investment, durable goods, government expenditure, endogenous labour supply. For each of those cases we also discuss the testable implications of the theory. At last we move to the two good model and discuss the Harrod-Balassa Samuelson effect.
In the second part we will move to the international real business cycle literature. The goal of this research is to understand and explain business fluctuations and their international transmission. We will first introduce the basic model of international real business cycle (Backus, Kehoe and Kydland JPE 1985) which is a stochastic dynamic general equilibrium model with endogenous labour supply and two goods aggregated via an Armington aggregator. After discussing the implications of this model we will overview the major puzzles in international macroeconomics: Feldstein-Orioka, the home bias in consumption and home bias in investment, Mussa puzzle, disconnect puzzle, Backus-Smith puzzle, output/investment/employment correlation puzzle.
Finally we will briefly introduce the most recent new open economy literature whose models depart from the international RBC literature because of the addition of nominal frictions.

The course surveys various topics at the intersection of labor economics and macroeconomics, using both empirical and theoretical approaches. We cover human capital and earnings inequality, structural and frictional unemployment, search and matching models of the labor market, frictional wage dispersion, business-cycle theories of the labor market, as well as labor market policy such as unemployment insurance, job protection legislation and minimum wages. Prerequisites are microeconomic and macroeconomic theory and econometrics.

The course builds macroeconomic models of asset pricing and studies their quantitative implications for real and financial variables. We will start by reviewing the portfolio decision problem of a single investor under different assumptions on asset returns and preferences and then embedded this problem into a dynamic general equilibrium framework which determines asset prices and returns endogenously. We will identify the pricing kernel as the crucial object to price assets with an arbitrary pay-off structure including bonds, stocks, and options and study its form under alternative modelling assumptions. Using numerical simulations, we will then study the quantitative implications of different asset pricing models and how well they hold up against empirical data.

The course discusses macroeconomic models designed to study monetary policy. Specifically, we will analyze if and how monetary policy can influence real variables such as output, employment, and growth as well as monetary variables such as interest rates, inflation, and the price level. Further, we will study the interaction between monetary and fiscal policy and their joint impact on the economy.

This course introduces students to the dynamic stochastic general equilibrium (DSGE) models used in modern monetary macroeconomics called New Keynesian models. The basic model equations including nominal frictions such as price stickiness are derived carefully, and model solution techniques are discussed. Numerical solutions of the models are obtained and the models are simulated and analyzed using Dynare in MATLAB. Possible extensions to the core model that may be treated in class include an analysis of optimal monetary policy.

After completing the course, students should understand the dynamic mechanisms of nominal rigidities and the policy tradeoffs facing monetary policy. Mechanically, students will be able to derive, solve and simulate simple DSGE models and should be able to read and understand more elaborate models found in the literature.

We will study variants of the three “workhorses” of dynamic macroeconomics in general equilibrium:

• the neoclassical representative agent model,
• the Aiyagari-Bewley-Huggett models with intra-generational heterogeneity,
• and overlapping generations (OLG) models, featuring intra- as well as inter-generational heterogeneity.

While all these types of models will be analysed, most room will be given to life-cycle economies (OLG applications). For this reason, we will start out by extensively studying partial equilibrium models of household behaviour, e.g. the dynamics of consumption, savings, labour supply and portfolio allocation decisions over the life-cycle. Once we roughly understand these models, we will turn to general equilibrium models. Our general equilibrium discussion will then cover models with idiosyncratic risk (e.g., individual unemployment shocks that, in each time period, affect only a fraction of agents in the economy) and, if time permits, also models with aggregate risk (e.g., productivity shocks that simultaneously affect all agents).

The course gives an overview of tax theory and tax policy on an advanced level. It covers:

• Historical lessons in tax policies
• Taxation principles
• Tax incidence               
• The excess burden of taxation
• Optimal taxation
• Taxation of external effects
• International tax competition

There is ample evidence that the assumption that agents always make rational decisions in financial markets does not accurately describe what is observed in reality. The research field of Behavioral Finance analyzes how systematic deviations from rational behavior affect individual investor’s decision making as well as aggregate capital market outcomes. The course starts with an introduction to the most important biases in financial decision making. Then, typical patterns in buying and selling decisions of investors as well as long—term investment decisions like saving for retirement are discussed. In the second part of the course, the influence of these heuristics and biases on aggregate market outcomes is analyzed. In this context, different types of market efficiency and the concept of ”limits—to—arbitrage” are discussed. Subsequently, the most prominent return predictabilities in the cross—section of stocks returns and their potential behavioral explanations are introduced. The course concludes with an outlook on behavioral corporate finance.

This is an elective (specialization) course, which fits into 2nd year Master program. It requires some fundamentals of financial markets, products and institutions, as covered in basic and intermediate finance classes like Finanzen 1, 2, and 3 in the Bachelor program, or in the Corporate Finance and Capital Markets Core Courses (Master program).

Content-wise, the lecture provides a Master-level treatment of important corporate finance issues. The headlight is on equity, debt, and financial strategy.

In this course we discuss asset pricing models and ways to estimate and test these. The first part of the course deals with econometric tools that are necessary to do so, in particular, the Generalized Method of Moments. We than review a number of approaches to explain the variation of expected stock returns in the time—series and in the cross—section. Starting with the classic Consumption—CAPM by Lucas (1978) and Breeden (1979), we discuss recent advances in the field of consumption—based asset pricing. Furthermore, we cover linear factor models like the one of Fama and French (1993) and some extensions.

The first part of this course will introduce mortality tables and mortality laws (period vs. cohort tables, Exponential and Gompertz Makeham laws). Subsequently, different types of live annuities will be introduced and priced. Based on this, we investigate into different pension plan designs. The second part deals with modeling long—term investments. We first introduce alternative approaches to describe stochastic capital market returns and discuss the relation between the normal and the log—normal distribution. Subsequently, we analyze a variety of investment risk measures (e.g. volatility, shortfall risk measures, Value at Risk). The course concludes with an analysis of time diversification of equity returns and its application in case—study—based investment decisions

The course focuses on understanding and evaluating the impact of the Financial Sector on the development of the real economy. This course consists of a two parts. In the first part (approx 25%) we will discuss theories of Financial Development. In the second part (approx 75%) we will see how researchers implement different econometric techniques to examine various theories to examine the impact of Finance on the Real Economy. To this end, we will revisit econometric theory to understand the underlying assumptions and limitations of econometric estimators. We will then examine and replicate empirical research papers to see how different techniques (OLS, Panel estimation, Instrumental-variables and Differences-in-Differences) are utilized to identify a causal relationship. This fosters the understanding of limitations of empirical research.

The goals of the ALMI lecture are to understand asset and liability management strategies used in insurance companies, and to understand the new Solvency II insurance regulatory rules. The contents of the ALMI lecture are separated into three categories: Liability Management, Asset Management, and Asset Liability Management and Solvency II. The first part – Liability Management – focuses on topics such as risk pooling, insurance pricing, estimation of reserves, risk sharing, reinsurance, alternative risk transfer, and capital management. Students are supposed to understand the sources of risks in insurance companies, and to learn techniques to measure and limit these risks. For the Asset Management part, the lecture applies classic pricing methods as well as performance measurements to the insurance context. Specifically, in this part students are expected to practice knowledge such as Markowitz Diversification, CAPM, Performance Measurements, and Dynamic Financial Analysis. In addition, the second part offers insights into the regulatory framework for insurers’ investment policies. The last part – Asset Liability Management – integrates both asset management and liability management strategies to arrive at an integrated risk management of insurance companies. It aims to help students understand the motivation and importance of conducting ALM, and to further equip students with methodologies such as simultaneous and classic modeling based on the Markowitz approach. Furthermore, policyholders’ reactions on the default risks of insurers are also incorporated as one of the topics. We also discuss the envisaged Solvency II regulatory regime and its implications for ALM

Risk management is a core competency of banks. Nevertheless, the financial crisis has demonstrated that while risk models are fairly advanced at a number of banks, risk culture and risk governance is still not fully developed at many banks. Thus, this course focuses on the qualitative elements of risk management, including relevant regulatory requirements.

This course is held in german.

Dieser Kurs soll Studierende mit den wichtigsten grundlegenden empirischen Methoden im Bereich Personal Finance vertraut machen. Bei der Einführung in die theoretischen Konzepte wird der Schwerpunkt dieser Vorlesung auf die praktische Umsetzung der empirischen Mehtoden liegen. Dieser computergestützte Kurs richtet sich an Studentinnen und Studenten, die noch keine oder geringe Programmiererfahrung in STATA haben.

This course provides an overview of different aspects of commercial real estate finance. The first part of the lecture presents different valuation techniques for private and public commercial real estate. The second part discusses data challenges in measuring property returns and presents econometric methods for index construction. The third part covers the debt side of commercial property investments and the pricing of commercial mortgage backed securities. The course aims to provide students with an advanced knowledge of income-producing properties and commercial real estate markets. The course offers several R exercise sessions, in which the learned methods are applied to real estate data.

Many complex systems in nature, technology or society can be represented as networks consisting of nodes connected by links. Such an approach has not only revealed structural regularities in different types of systems, e.g. food webs and social networks, suggesting common underlying mechanisms and concepts, but is also used to study the influence of the corresponding network structure on the behavior and function of the system. Recently methods from complex network theory have been applied to financial data and models, often to access systemic risk arising from the interconnections of the corresponding systems. This course represents an introduction to concepts and methods from complex network theory.  Topics include: basic network models; sampling techniques; spreading, percolation and cascade processes on networks; network control; network models for financial systems.

This course analyzes credit risk modeling and the pricing of credit derivatives. One of the goals is to make students familiar with the characteristics of these contracts and to clarify the relations between them. We introduce the two main approaches to modeling credit risk (firm value models and reduced—form models). The pros and cons of these approaches are highlighted. This includes a discussion of the tractability, the practical relevance, and the typical applications of these models. The emphasis is however on reduced—form models.

Topics

1. Introduction to Credit Markets
2. Pricing of Corporate Bonds
3. Pricing CDS
4. Correlated Defaults
5. Multi—name Credit Derivatives

The purpose of this course is to teach practical methods for the analysis of credit risk in asset backed finance structures. This will be done using different types of asset backed securities and covered bonds. Following increased regulatory scrutiny aimed at issuers and rating agencies, asset backed securities have re—emerged as a more robust financial instrument offering a diversification of funding as well as capital relief. The modelling techniques learned in this course can be applied in other areas where liability payments depend on risky cashflows generated by certain assets, eg project finance.

Learning outcomes

We will discuss best—practice analytical methodologies used in the financial industry. The analysis can broadly be split into two parts. The first part deals with the characteristics of the asset portfolio. The modelling approach differs depending on the loans contained in the portfolio, eg residential mortgages are treated differently than consumer loans. Students will learn how to model the risk factors associated with these portfolios and how to determine the portfolio’s default and recovery rate. The second part will discuss techniques for dynamic cash flow modelling, ie the priority of payments and matching of assets’ and liabilities’ cashflows after introducing default and recovery timing assumptions, as well as other dynamic components. In combination, these two parts will provide an understanding of how tranching is derived. Finally, the course will cover counterparty risks associated with a structured finance transaction and how these can be mitigated. Further, we will analyse covered bonds and the similarities/differences in their analytical treatment compared to asset backed securities. The course will include recent real—world examples and case studies from the financial industry.

In this course we will discuss the valuation of derivative securities using models in continuous time. We start with a discussion of some stochastic processes and tools in stochastic analysis that are important for the valuation of options. We then derive the fundamental partial differential equation and treat the martingale based approach to pricing derivatives. The most relevant special case is the model of Black and Scholes for which we are able to derive the famous valuation formula for options based on the theory treated before. We then discuss dynamic hedging of options and the concept of implied volatility. The latter motivates the treatment of alternative models including jumps and stochastic volatility. Afterwards, we briefly discuss numerical methods which enable the valuation of exotic options. At the end of the course, we outline one or two advanced topics that draw on the content covered before.

In this course we will discuss basic numerical methods for the valuation of derivative securities, like Monte Carlo simulation, finite difference methods, and regression-based valuation of American options in detail. We will mostly focus on equity derivatives in the geometric Brownian motion framework, but we will also discuss alternative models like the Heston stochastic volatility model or Merton’s jump-diffusion model. The course is not meant to be a course in numerical mathematics, its focus is rather on the basics of a set of very useful numerical techniques, which are widely applied in industry practice and in research. The implementation will be done in GNU Octave (a free MATLAB-like programming environment).

The objective of this course is to introduce students to recent developments in analysis of financial data both time series and cross-sectionally including highfrequency financial data. This course assumes a basic knowledge of the econometric tools and will focus on their application to financial data both time series and cross sectionally. The course includes introductory lectures on MatLab/Stata programming as well as the use of Bloomberg terminal and Eikon data.The course will be a mixture of presentations by the instructor and practical classes. Students will be also required to complete home-work assignments, which includes working with data.

This course is thought to Master students in the field of finance. It offers a substantiated view about issues of Financial Systems and tools to analyze them. Against this background the course is divided in three parts. The first part covers the basic topics of international banking that is first the need for financial intermediation and thereby for financial intermediaries; second, topics concerning banking behavior as strategy and merger & acquisition; third,

regulation setting the rules for international banking and last other financial institutions like capital markets and insurance companies which complete the institutions within a financial system.

The second (major) part deals with the setup and the analysis of financial systems in a general context. But it also covers in—depth the financial systems of Germany, France, United Kingdome and the United States. The main objective of this chapter is to demonstrate the importance of each part of a financial system which is the financial sector, the corporate (non—financial) sector, corporate governance and the way this fit together. The course also refers to macroeconomic impacts of banking and financial systems by discussing the field of financial

systems’ design and economic growth.

The third part introduces the field of development finance and especially micro finance as a relatively new tool in banking. Thereby, this chapter covers the evolution of development finance within several decades and discusses strategies and success. It also touches ethics aspects of development/micro finance and provides a theoretical framework for a commercial approach in micro finance. Last, students get to know with the challenges of development finance and in detail with micro finance as a special part of some Financial Systems.

The course will analyse hedge fund strategies and introduce financial instruments necessary to implement these strategies along the way. The goal is to make students familiar with different types of strategies and to understand the economic origins of short- or long-term return predictability.

Topics include: Intro to hedge funds, Carry, Momentum, and Value, Fixed income arbitrage, Macro strategies, Asset allocation decisions, Smart Beta.

Insurers are the second main pillar in the financial system, next to banks. Insurers employ 1 million people in the European Union; they hold €10 trillion financial assets and have virtually every household and every corporation as a customer.  Insurers are often wrongly equated with banks but have a fundamentally different business model. Insurers have an important role in the economy. They allow risk taking and thereby foster innovation and growth; they can act as stabilisers in the financial system due to their long-term investments and they create social financial networks through the mutualisation of risks. This course gives a concise and rigorous insight into the purpose, role and regulation of insurance. Key items include:

The essence of insurance and its delimitation from other financial activities.

The analytical foundation of insurance: risk and uncertainty; adverse selection and moral hazard; mutualisation, diversification and the law of large numbers.

Interaction of insurance with the economy and the financial system: the economic and financial role of insurance. The role of capital, liquidity and leverage.

Insurance products, services and markets: a brief overview.

The regulation of insurance at European and international level: key policy issues.

This course is relevant for students who have a keen and comprehensive interest in finance, financial stability and financial regulation and who are aware that focusing on the banking system alone covers only part of the relevant issues in the area. The course is also relevant for students with a macro economic interest who want to understand the key role of long-term savings and investment and the stabilisation this also has for reducing short-term uncertainty. And finally, the course is interesting for students who like to work in the financial sector in the future.

Building on methodologies and instruments acquired in compulsory courses in earlier semesters, the lecture series entitled ”International Financial Architecture” takes a practical view on the realities of today’s global financial markets. Starting with an overview of the most important capital and banking markets, the series continues to review major industry and product trends. A further key topic will be the degree of integration of global and regional financial markets in selected market segments and infrastructure. Particular attention will be devoted to financial crises and market failures and the possible remedies. Finally, regulation and supervision as potential mitigants for financial market failure will be reviewed.

Corporate managers and their professional advisors must be familiar with major corporate restructuring transactions. These include mergers & acquisitions (M&A), but also sell-offs, spin-offs, equity carve-outs, share repurchases, and leveraged recapitalizations among others. This interdisciplinary course draws from finance, economics, law, accounting and strategy to build a framework for understanding these transactions. The course takes seriously the often-conflicting goals of key players - directors, managers, stockholders, creditors, and employees - each trying to maximize their own interests subject to various behavioral, legal, and market constraints. The course begins with an examination of the structure and governance of the public corporation. The conflicts of interest between corporate managers and stockholders, which are often key issues in M&A transactions, are identified and the market forces and legal rules that help to resolve these conflicts are discussed. The course also provides practical training in the various valuation techniques that real-world managers and professional advisors use to evaluate restructuring transactions. Students are expected to use these techniques to analyze the restructuring transactions under discussion. At the same time, the course deals straightforwardly with the limits of these techniques. Next, the course covers the theoretical rationales for each of the various restructuring transactions. The available empirical evidence is examined to help sort out which motivations are most important and to shed light on how the transactions impact the welfare of managers, stockholders and other corporate stakeholders. Students completing the course successfully should be well positioned to better understand and take part in major corporate restructuring efforts, without falling prey to ”black-box” analytical arguments that often hide the complexity and uncertainty of the restructuring landscape.

This course aims at equipping students with the most relevant fundamental methods of Quantitative Portfolio Management. While thoroughly introducing the theoretical concepts, the particular focus of this lecture will be on aspects of their implementation in the investment practice. We will look at strategic as well as tactical asset allocation for equity and bond portfolios, portfolio insurance strategies and the fundamentals of asset-liability management. Another focus of the course is on passive and active equity portfolio management. The course is completed by an introduction into risk models. The course includes an excursion to the Frankfurt office of Allianz Global Investors.

The course discusses some modern dynamic models of the macroeconomy. It is intended for masters’ level students with an interest in macroeconomics, finance, and monetary policy. We will also cover some basic numerical tools to solve these models. Familiarity with Matlab will be helpful but is not required.

The course is introduces students to the fundamentals of real estate markets and provides concepts and techniques for analyzing financial decisions in real estate development and investment. We study the economic forces driving housing and mortgage markets, and their interactions with the wider macro economy. The class starts with an analysis of house price movements. An overview over real estate liabilities, real estate investments and real estate risks will be provided. We consider real estate property development and (pricing of) mortgage liabilities, with focus on residential properties. The course may be supplemented with E-learning components.

Insurance companies play a vital role: for individuals that seek to decrease uncertainty of wealth, for businesses that want to manage business risk, for the real economy by providing funds and pooling risks, and for the financial market by being important counterparties in numerous financial transactions. In this course we will shed light on these different roles of insurance companies. We will compare the implications for different stakeholders and (insurance) markets in general. In the first part of the course, we will provide the basics for understanding the different roles of insurance companies, that include the microeconomics of insurance demand and information asymmetries in insurance markets, the specifics of life insurance and its regulation, the relation between economic growth and insurance penetration, the behavior of insurers as asset investors, and the relation between financial crises and insurance companies. In the second part of the course, participants will present research papers that examine specific details  about these different roles of insurance companies. Based on their presentation, participants are required to hand in a written homework about the policy implications of the presented research. The final 60 minute exam will comprise the discussion of two presented research papers.

This course explores the theory of asset valuation and its applications to the pricing of financial instruments, such as, for example, bonds, stocks, futures, and options. The pricing problem of financial assets will be analyzed both in a partial and in a general equilibrium framework. Both discrete time and continuous time techniques will be considered.

This course is organized in six parts: First, we analyze the core concepts of environmental ethics, including the Millennium and Sustainable Development Goals as well as Elinor Ostrom’s work on the (tragedy of the) commons. Second, we study the basics of climate science, that is, climate modeling and climate scenarios. Third, we examine the causes as well as the socio-economic, environmental and ethical consequences and impacts of climate change. In the fourth part, we discuss potential reform measures and response strategies. The fifth part deals with the ‘environmental policies’ of the current US administration as well as the topic of climate change denial. The sixth and final part of the course assesses the special role of financial institutions as well as the so-called business case (argument) for climate change mitigation and adaptation.

Ethics is an integral part of all business practices. This thesis is the starting point of the course ‘Fundamentals of Economic Ethics’. In this course, students will learn about the ethical dimensions of economics and business. Especially business practices do not take place in an ethical vacuum – rather it is a complex undertaking with broad and important societal implications. Students will be given the opportunity to explore fundamental ethical principles, theories, case studies and codes of ethics as they relate to business or economic ethics. Emphasis will also be placed on analyzing recent corporate governance scandals and contemporary ethical challenges in business and society – with a particular focus on business and human rights and computer ethics. Students should finish the course with an awareness of the complexity of business practice, increased sensitivity to potential ethical issues that can arise and an enhanced ability to effectively address these issues. The course will also help students to improve their ethical reasoning and critical thinking skills.

Because of the growth of so many subdisciplines, it becomes increasingly difficult to perceive the unity of economic theory. The best way to understand the different orientations is to go to the roots and to study their origin in the history of the emergence of modern economic thought. The lecture course will start with the classical authors like Ricardo and Malthus, Say and Sismondi, up to Mill, Marx and some of their followers. Their opponents were the Historical school and neoclassical authors who were more diverse than is commonly thought (Jevons and Marshall, Walras and Pareto, Menger and Böhm-Bawerk, J.B. Clark). Schumpeter and the discoveries of the “years of high theory” (Shackle) will lead to Keynes, postkeynesian authors and the neo-neoclassicals. Main themes will be: value and price, general equilibrium, growth and distribution, money, credit and the business cycle

Empirical methods are required to test underlying economic theories and address research questions. This course provides an introduction to the field of applied empirical research using statistical software tools. We will revisit econometric theory to understand how estimators are implemented to identify causal relationships using (publicly) available data. Moreover, we will replicate applied empirical papers to see how researchers utilize different estimation techniques to draw causal inference. We will cover the following topics:

• Data collection and handling with software (Stata, R)
• Recap of econometric theory (Gauss Markov assumption, Conditional mean independence assumption)
• Derivation of estimator properties and causal inference
• OLS regression
• Panel estimation,
• Instrumental Variables Estimation,
• Average Treatement Effects
• Application of estimators in different research papers and interpretation of results