|This course aims to give a solid treatment of advanced corporate finance theories, with an emphasis on the recent development in connecting modern corporate finance models with financial intermediaries and capital markets.
1. In the first part, we start by covering classic corporate finance theories in static setting, including adverse selection, debt overhang, and the optimality of debt contract in various environments. We then go over dynamic corporate finance models, including Leland type models, and continuous-time contracting such as Holmstrom-Milgrom and DeMarzo-Sannikov.
2. In the second part, we will cover classic work horse models in market liquidity. The first set includes trading liquidity, such as Kyle, Glosten-Milgrom, Duffie-Garleanu-Pederson, and we will connect them to financing decisions of firms such as He-Xiong models. The second set is limited participation models such as static Allen-Gale and Holmstrom-Tirole models, followed by He-Krishnamurthy and Brunnermeier-Sannikov dynamic models with emphasis on intermediary asset pricing.
3. The third part is topics related to macroeconomics, with corporate finance micro foundations. Our tentative plan is to cover global games and its applications in modeling bank runs, classic investment models with agency frictions, and dynamic models of bubbles and crashes.
This class is only for second/third year PhD students from Econ department and Booth. Students are expected to be familiar with game theory from standard PhD level Economic courses, recursive formulation and dynamic programing techniques from standard macroeconomics courses, and standard portfolio theories from PhD level Asset Pricing courses. Solid understanding of continuous-time stochastic calculus is greatly appreciated, and basic techniques (e.g., Ito's lemma) are required.
|Theory of Financial Decisions I, II, III; the Economics of Information (Harris); one asset pricing PhD course with a full treatment of continuous-time analysis (either Veronesi or Panageas).
Macro sequence in Econ department is highly recommended, but not required.
Description and/or course criteria last updated: 06/2013