Graduate Center Masterclasses

Course Objective

Learning Objectives
Upon successful completion of this course, students will be able to:
 Understand the main concepts and empirical methods behind conducting stress tests that are key for diagnosing systematic risk and financial stability exposure.
 Translate discrete-time models into their continuous-time counterparts through the use of simple continuous-time stochastic calculus.
 Use and develop numerical techniques of dynamic optimization (Matlab) for solving continuous-time models for addressing Economics/Finance questions.
 Work independently in order to expand the research frontier of modern financial stability toward new research questions in economics and finance.
 Develop novel thinking about the interplay between financial intermediaries and the real economy, through using micro-founded models of asset pricing that allow for crisis/misallocation pricing.
 Develop new policy-evaluation tools.

Outline
 Lecture 1 – Outline of stress-test concepts and empirical methods of financial stability. Revision of stochastic calculus (Brownian motions, Poisson processes, Hamilton-Jacobi-Bellman equations), and introduction to bankruptcy models.
 Lecture 2 – Understanding credit-cycle and inside-money models of financial intermediation in discrete and continuous-time. Further empirical tests and empirical literature, motivated by these theoretical models.
 Lecture 3 – Numerically solving continuous-time credit-cycle and inside-money models with endogenous growth. Related empirical tests and questions.

Teaching approach
Slides and practice problem sets will serve as guides and computer codes will be analyzed and distributed. Demonstration of algorithm formation and Matlab coding in the class. Guidance on studying new literature will be provided.

About the instructor

Christos Koulovatianos is a Full Professor and Head of the Department of Finance at the Faculty of Law, Economics and Finance at the University of Luxembourg. His research focuses on key areas in financial economics and macroeconomics, with particular emphasis on household finance, financial markets, information economics, and sustainability. His work explores topics such as dynamic games, rational learning under incomplete information, demographic influences on macroeconomic outcomes and household decisions, technological change, and industry dynamics. 

More information is available on his personal webpage.

Registration

If you want to join this short course, please register with the Graduate Center on a first-come, first-serve basis: gradcenter@diw.de