Kenapa Pasar Keuangan?
Pasar keuangan memungkinkan alokasi sumber daya secara efisien
- across time
- across states of nature Contoh 1: Pekerja dengan gaji tinggi. Apa yang harus dia lakukan?
- Pasar finansial: Investasi di saham dan surat utang untuk membiayai masa pensiun, rumah, pendidikan, dll
- Apabila tidak ada pasar finansial: Hanya bisa konsumsi saja Contoh 2: Petani memproduksi jeruk
- Pasar finansial: Hedge menggunakan futures markets, terkait dengan derivatives
- Apabila tidak ada pasar finansial: Hanya bisa spot market saja
Role of markets
- Mengumpulkan informasi
- Mengumpulkan likuiditas, supply and demand
- Efisiensi dan fairness (keadilan) Produk: Memenuhi “kebutuhan”
- Hedge risk
- Allow speculation
- Raise funds
- Funds liabilities
Modeling Financial Markets
- Discrete-time models
- Single period models
- Multi-period models
- Continous-time models
Pros/Cons of discrete-time models
- Pros: All important concepts with less sophisticated math
- Cons: No closed-form solutions… Need to resurt to numerical calculations
Financial Economics vs Financial Engineering
Financial Economics: Use equilibrium arguments to
- Price equities, bonds, and other assets
- Set interest rates Financial Engineering: Assume prices of equities and interest rates given
- Price derivatives on equities, bonds, interest rates, etc, using the no-arbitrage condition Not even close to being a complete separation
- For example, Capital Asset Pricing Model (CAPM) of interest to both
Central Problems of FE
Security pricing
- Primary securities: stocks and bonds … financial economics
- Derivative securities: forwards, swaps, futures, options, on the underlying securities. Portfolio selection: choose a trading strategy to maximize the utility of consumption and final wealth
- Intimately related to security pricing
- Single-period models: Markowitz portfolio selection
- Real options, e.g., options on gas pipelines, oil leases, and mines Risk management: understand the risk inherent in a portfolio
- Tail risk: the probability of large losses
- Value-at-risk and conditional value-at-risk
- Starting to become important for portfolio selection as well Led to interesting applied math / operations research problems