3.0

credits

Average Course Rating

This course presents an alternative view of risk that emphasizes the probabilistic nature of external events that affect economic actors. Students will learn the theory and practice of probabilistic risk analysis to solve four classes of problems: portfolio allocation (as an introduction), early warning, risk index construction, and real options. We will leverage some familiar and some new analytic tools, including decision trees, Bayesian networks, fault trees, Markov processes, convex optimization, and Monte Carlo simulation. Prerequisites: 440.601 Microeconomic Theory and 440.605 Statistics. Corequisite: 440.606 Econometrics. 440.640 Financial Economics is recommended but not required.