Macro-Finance ECON5164

  • Academic Session: 2025-26
  • School: Adam Smith Business School
  • Credits: 20
  • Level: Level 5 (SCQF level 11)
  • Typically Offered: Semester 2
  • Available to Visiting Students: No
  • Collaborative Online International Learning: No
  • Curriculum For Life: No

Short Description

This course examines the intersection of macroeconomic trends and financial markets, focusing on how economic conditions impact asset prices, risk premia, interest rates, and option pricing. Students will explore macro-finance models that capture the relationship between business cycles, interest rate theory, and risk-bearing capacity, analysing how these factors influence asset returns and option values. Core topics include the equity premium, volatility, asset pricing, and the theoretical underpinnings of interest rate movements. Through practical application, students will analyse real-world economic and financial data to assess asset and option pricing models in various economic conditions.

By the end of the course, students will have developed a robust understanding of macro-finance principles, interest rate theory, and option pricing, equipping them with essential analytical skills for careers in asset management, economic analysis, and risk assessment within the financial industry.

Timetable

10 x 2-hour lectures
5 x 1-hour tutorials

Requirements of Entry

Students must be registered on one of the associated programmes listed in this course specification.

Excluded Courses

None

Co-requisites

None

Assessment

ILOs

Main Assessment In: April/May

Course Aims

The course aims to:

■ Provide students with a comprehensive understanding of macro-finance principles, focusing on how economic fluctuations, interest rates, and risk-bearing capacity influence asset pricing, option pricing, and risk premia.

■ Equip students with the analytical skills to apply macroeconomic theories to asset pricing models, using mathematical tools such as stochastic calculus to assess the impact of business cycles and interest rate changes on financial markets.

■ Prepare students for industry roles in asset management, economic analysis, and risk assessment by developing advanced problem-solving skills essential for evaluating macro-financial factors in financial decision-making.

Intended Learning Outcomes of Course


By the end of this course, students will be able to:

1. Analyse and assess the impact of macroeconomic factors-including business cycles, interest rates, and economic volatility-on asset and option pricing, applying macro-finance theories in practical contexts.

2. Apply mathematical frameworks to evaluate the role of interest rate theory and risk premia in the pricing of financial assets, demonstrating insights into how macroeconomic changes influence financial markets.

3. Synthesize and apply concepts from stochastic calculus and continuous-time optimization, including the Hamilton-Jacobi-Bellman equation, to model and solve complex financial decision-making problems.

4. Derive and critically evaluate continuous-time asset pricing models, such as the Merton portfolio choice model and the Black-Scholes option pricing model, using principles of stochastic control theory.

5. Interpret and assess the pricing of financial assets (e.g., stocks and options) in uncertain and dynamic market environments, using rigorous mathematical frameworks.

Minimum Requirement for Award of Credits

Students must submit at least 75% by weight of the components (including examinations) of the course's summative assessment.