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| Module Availability |
All Year
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| Assessment Pattern |
| Unit(s) of Assessment |
Weighting Towards Module Mark (%)
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3 Hour Examination
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70
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Coursework
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30
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Qualifying Condition(s)
A weighted aggregated mark of 40% is required to pass the module. |
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| Module Overview |
| This module first develops equilibria concepts for static, dynamic, complete and incomplete information games. These equilbria concepts are then applied to the banking environment to demonstrate how banks can reduce market frictions and promote the efficient allocation of resources |
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| Prerequisites/Co-requisites |
| None |
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| Module Aims |
| The aim of this module is to show how game theory and informational economics can provide valuable insights into the role, functions and operations of financial intermediaries in the modern financial systems. |
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| Learning Outcomes |
By the end of this module students will:
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Understand how information and dynamic assumptions lead to different equilibrium assumptions;
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Be able to solve for the following equilibria: Nash, subgame perfect, Bayesian and perfect Bayesian;
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Be able to apply these equilibria concepts to a wide range of problems including and emphasising those faced by banks in performing the intermediation function
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Demonstrate understanding of the role of banks in the financial system and the variety of their operations;
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Be aware of the challenges that both banks and regulators face in light of recent events.
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| Module Content |
The following is an indication of the likely topics to be covered:
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Elements of a game, types of games and equilibria concepts;
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Static games of complete information: the Nash equilibrium;
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Dynamic games of complete information: the subgame perfect equilibrium;
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Static games of incomplete information: the Bayesian equilibrium;
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Dynamic games of incomplete information: the perfect Bayesian equilibrium;
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The role of banks in the financial system;
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Design of deposit contracts and insurance provision;
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Banks’ financial statements;
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Management of banks;
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Risks in banking and risks management;
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Banking crises and the need for banking regulation;
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Central banking and monetary policy.
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| Methods of Teaching/Learning |
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Autumn Semester: Weekly two-hour lectures and weekly one-hour workshops
Spring Semester: Weekly two-hour lectures
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| Selected Texts/Journals |
Main Readings:
- Gibbons, R. (1992). A Primer in Game Theory. Harvester Wheatsheaf.
- Greenbaum S. and Thakor A. (2007). Contemporary Financial Intermediation. Elsevier, 2nd edition (e-book available in the library)
- Casu B., Girardone C. and Molyneux P. (2006). Introduction to Banking. Pearson
- Mishkin F.S. (2007) The Economics of Money, Banking and Financial Markets, 8th ed., Pearson
Additional Readings:
- BoE handbooks: Deposit Insurance
http://www.bankofengland.co.uk/education/ccbs/handbooks/pdf/ccbshb09.pdf
- Freixas X. and Rochet J.-C. (2007). Microeconomics of Banking. MIT Press, 2nd edition.
- Koch T. W. and MacDonald S. S (2003) Bank Management, 5th ed., Thomson. (copy of the chapter is available in short-loan section in the library - chapter 3: Analysing Bank Performance: Using the UBPR)
- Matthews K. and Thompson J. (2008). The Economics of Banking. 2nd ed., Wiley (copy of the relevant material available in short-loan section in the library, also e-book available)
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| Last Updated |
6 October 2010
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