LECTURES ON THE THEORY AND APPLICATION OF MODERN FINANCE WITH R AND CHATGPT

These lecture notes are thought for Master courses in Finance, Fintech and Quantitative Finance programmes. We fully subscribe to the philosophy that post-graduate students should be offered courses that are really at the cutting edge of the technologies and advances that are disrupting the financial industry and delve deep into topics such as A.I., machine learning, and their importance for Asset Management. In these notes, the illustration of the theory of Finance is paired with practical applications to real-life asset allocation problems. A hands-on approach is proposed to construct and manipulate databases to build portfolios, assess their performance and manage their risk. The course begins with a section on the fundamentals on individual choice to market valuation, covering the traditional Markowitz mean-variance approach, market-based asset pricing and Arbitrage-based pricing theory. Empirical modelling in finance is then introduced by illustrating its working and its historical evolution. The translation of financial theory into action on data is driven by building predictive models for asset prices and returns. Basic models are explored, and programming emerges as an essential prerequisite for data manipulation. Readers can acquaint themselves with the statistical software R and exhibit the application of theoretical concepts to financial data, illustrated by sample programs, exercises, and corresponding solutions.

Carlo Favero holds a PhD from Oxford University, where he was a member of the Oxford Econometrics Research Centre. He has been a professor of Econometrics at Bocconi University from 1994 to 2001 and professor of Economics since 2002. In 2009, he joined the newly formed Department of Finance at Bocconi University, where he taught Econometrics. Since 2023, he holds a dual affiliation with the Department of Economics and the Department of Finance. He has published in scholarly journals on the econometric modelling of bond and stock prices, applied econometrics, monetary and fiscal policy and time-series models for macroeconomics and finance. He is a research fellow of CEPR in the International Macroeconomics programme, and a fellow of the Innocenzo Gasparini Institute for the Economic Research and the newly formed Institute for European Policymaking at Bocconi University. He is advisor to the Italian Ministry of Treasury for the construction of a stock-flow consistent econometric model of the Italian economy. He has been consulting the European Commission, the World Bank and the European Central Bank, on monetary policy and the monetary transmission mechanism and bond markets. He co-authored with A Alesina and F Giavazzi on the book, Austerity: When it Works and When it Doesn't (Princeton University Press, 2019). The book has been translated in Chinese, Spanish and Italian and in May 2020 was awarded the Hayek Book Prize by the Manhattan Institute.

Claudio Tebaldi holds a PhD in Statistical Mechanics and an MA in Complex Systems from the International School of Advanced Studies Trieste, an MA in Economics and Finance from Venice International University and is currently Professor of Quantitative Methods for Economics, Finance, and Insurance. He is a member of the Department of Finance at Bocconi University, a fellow of Baffi-Centre for Economics Finance and Regulation, of the Innocenzo Gasparini Institute for the Economic Research and of the newly formed Institute for European Policymaking at Bocconi University. He is currently the Scientific Director of the Bocconi Fintech Lab and the Editor-in-Chief of Quantitative Finance. He has visited many private and public research and policy institutions including UCLA, NYU, NORDITA, the University of Copenhagen, the Federal Reserve Board, ECB Deutsche Bundesbank, EC Directorate for Financial Affairs, and Bloomberg. His research is mainly focused on financial risk management, asset and derivative pricing and has been featured on many high impact journals in the field of quantitative methods for economics and finance and two of his papers have been awarded as Best Paper in Finance of the Swiss Econometrics and Finance Society 2007 and Best Paper in Derivatives of the Northern Finance Association 2019.