Professor's lecture notes that you can download from moodle.
Helpful textbooks:
1) Eeckhoudt, Gollier, Schlesinger, 2005. Economic and financial decisions under risk. Princeton University Press.
2) Scandolo, 2013. Matematica finanziaria. Amon.
3) Sydsaeter, Hammond, Strom, 2012. Essential mathematics for economic analysis. Pearson.
Learning Objectives
The goal of this course is to present the basic ideas of Risk Theory, and in particular the fundamental principles of choice under risk, insurance and portfolio decisions.
Prerequisites
Basics of derivation, integration, and probability theory.
Teaching Methods
Class lectures. The course length is 12 weeks with two classes per week.
Further information
There exists a Moodle page for this course which provides further teaching materials (no password).
Type of Assessment
The learning assessment takes place through a written test aimed to verify the knowledge acquired.
The written test has a duration of 60 minutes and includes theory and exercises.
If the student gets a failing grade (smaller than 18) in the written test, then he/she fails the exam.
If the student gets a passing grade (greater or equal than 18) in the written test, then he/she may request, at his own discretion, to take an oral test. If the student does not take the oral test the final grade will coincide with the grade obtained in the written test. If the student takes the oral test the final grade is determined on the basis of the grade of the written test and the evaluation of the oral test. To achieve the "30 cum laude" grade it is necessary for the student to take the oral test.
The professor may reserve the right to integrate the written exam with the oral test in order to better asses the preparation of the student or in case of apparent non-compliance with the rules of good conduct by the student during the written exam.
Course program
1. Risk aversion: definition of risk aversion, risk premium and certainty equivalent, degree of risk aversion, absolute risk aversion and prudence, relative risk aversion, utility functions.
2. Measures of risk: increases in risk, aversion to downside risk, stochastic dominance.
3. Insurance decisions: optimal insurance, optimal coinsurance, comparative statics in the coinsurance problem, the optimality of deductible insurance.
4. Portfolio choices: the one-risky--one-riskfree-asset model, the effect of background risk, portfolios of risky assets.