master's degree A master's degree (from Latin ) is an academic degree awarded by universities or colleges upon completion of a course of study demonstrating mastery or a high-order overview of a specific field of study or area of professional practice.

Financial Economics Financial economics, also known as finance, is the branch of economics characterized by a "concentration on monetary activities", in which "money of one type or another is likely to appear on ''both sides'' of a trade".William F. Sharpe"Financial ...

provides a

rigorous Rigour (British English) or rigor (American English; see spelling differences) describes a condition of stiffness or strictness. These constraints may be environmentally imposed, such as "the rigours of famine"; logically imposed, such as ma ...

understanding of

theoretical A theory is a rational type of abstract thinking about a phenomenon, or the results of such thinking. The process of contemplative and rational thinking is often associated with such processes as observational study or research. Theories may be s ...

finance Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...

and the

economic An economy is an area of the Production (economics), production, Distribution (economics), distribution and trade, as well as Consumption (economics), consumption of Goods (economics), goods and Service (economics), services. In general, it is ...

framework upon which that theory is based. The degree is

postgraduate Postgraduate or graduate education refers to academic or professional degrees, certificates, diplomas, or other qualifications pursued by post-secondary students who have earned an undergraduate ( bachelor's) degree. The organization and stru ...

, and usually incorporates a

thesis A thesis ( : theses), or dissertation (abbreviated diss.), is a document submitted in support of candidature for an academic degree or professional qualification presenting the author's research and findings.International Standard ISO 7144: ...

or research component. Programs may be offered jointly by the

business school A business school is a university-level institution that confers degrees in business administration or management. A business school may also be referred to as school of management, management school, school of business administration, o ...

and the

economics Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and intera ...

department. The nature of the degree differs by university. Generally, the degree is largely theoretical, and prepares graduates for

research Research is "creativity, creative and systematic work undertaken to increase the stock of knowledge". It involves the collection, organization and analysis of evidence to increase understanding of a topic, characterized by a particular att ...

positions, for

doctoral A doctorate (from Latin ''docere'', "to teach"), doctor's degree (from Latin ''doctor'', "teacher"), or doctoral degree is an academic degree awarded by universities and some other educational institutions, derived from the ancient formalism ''li ...

study in

, or for roles in

applied economics Applied economics is the study as regards the application of economic theory and econometrics in specific settings. As one of the two sets of fields of economics (the other set being the ''core''), it is typically characterized by the application ...

. Some are positioned as

professional degree A professional degree, formerly known in the US as a first professional degree, is a degree that prepares someone to work in a particular profession, practice, or industry sector often meeting the academic requirements for licensure or accreditatio ...

s, preparing graduates for

career The career is an individual's metaphorical "journey" through learning, work and other aspects of life. There are a number of ways to define career and the term is used in a variety of ways. Definitions The ''Oxford English Dictionary'' defin ...

s in investment banking and finance, and are comparable to the

Master of Science in Finance Master or masters may refer to: Ranks or titles * Ascended master, a term used in the Theosophical religious tradition to refer to spiritually enlightened beings who in past incarnations were ordinary humans * Grandmaster (chess), National Maste ...

, though with an increased weighting towards economic theory. In some cases, programs are substantially quantitative and are largely akin to a

Master of Quantitative Finance A master's degree in quantitative finance concerns the application of mathematical methods to the solution of problems in financial economics. There are several like-titled degrees which may further focus on financial engineering, computational fin ...

. Closely related degrees include the "Master of Finance and Economics" and the "

Master of Economics The Master of Economics (MEcon or MEc) is a postgraduate master's degree in economics comprising training in economic theory, econometrics, and/or applied economics. The degree is also offered as an MS or MSc, MA or MCom in economics; varian ...

with a specialization in Finance". Recently, undergraduate degrees in the discipline are offered. The degree is gaining in recognition: Oxford's Financial Economics MSc is first ranked worldwide amongst ''all'' Masters in Finance programs.Note though that Financial Economics programs are not necessarily comparable with generalist programs in finance.

Structure

Masters in Financial Economics are usually one to one and a half years in duration, and typically include a

or research component. The programs require a

bachelor's degree A bachelor's degree (from Middle Latin ''baccalaureus'') or baccalaureate (from Modern Latin ''baccalaureatus'') is an undergraduate academic degree awarded by colleges and universities upon completion of a course of study lasting three to six ...

prior to admission, but do not (usually) require an undergraduate

major Major (commandant in certain jurisdictions) is a military rank of commissioned officer status, with corresponding ranks existing in many military forces throughout the world. When used unhyphenated and in conjunction with no other indicators ...

in finance or economics; a typical requirement is exposure to ( multivariable)

calculus Calculus, originally called infinitesimal calculus or "the calculus of infinitesimals", is the mathematical study of continuous change, in the same way that geometry is the study of shape, and algebra is the study of generalizations of arithm ...

and

differential equations In mathematics, a differential equation is an equation that relates one or more unknown functions and their derivatives. In applications, the functions generally represent physical quantities, the derivatives represent their rates of change, an ...

statistics Statistics (from German language, German: ''wikt:Statistik#German, Statistik'', "description of a State (polity), state, a country") is the discipline that concerns the collection, organization, analysis, interpretation, and presentation of ...

and

probability theory Probability theory is the branch of mathematics concerned with probability. Although there are several different probability interpretations, probability theory treats the concept in a rigorous mathematical manner by expressing it through a set o ...

, and

linear algebra Linear algebra is the branch of mathematics concerning linear equations such as: :a_1x_1+\cdots +a_nx_n=b, linear maps such as: :(x_1, \ldots, x_n) \mapsto a_1x_1+\cdots +a_nx_n, and their representations in vector spaces and through matrices. ...

. Many programs include a review of these topics as an admission- or preliminary course.Manchester's "Pre-Session" Mathematics & Statistics
MA in Financial Economics, IDC Herzliya
/ref> The

curriculum In education, a curriculum (; : curricula or curriculums) is broadly defined as the totality of student experiences that occur in the educational process. The term often refers specifically to a planned sequence of instruction, or to a view ...

is distributed between theory, applications, and modelling, with the emphasis on each differing by university and program, as above. * The theory component centres on

decision making In psychology, decision-making (also spelled decision making and decisionmaking) is regarded as the cognitive process resulting in the selection of a belief or a course of action among several possible alternative options. It could be either rati ...

under

uncertainty Uncertainty refers to epistemic situations involving imperfect or unknown information. It applies to predictions of future events, to physical measurements that are already made, or to the unknown. Uncertainty arises in partially observable or ...

in the context of the

financial markets A financial market is a market in which people trade financial securities and derivatives at low transaction costs. Some of the securities include stocks and bonds, raw materials and precious metals, which are known in the financial markets ...

, and the resultant

and

financial model Financial modeling is the task of building an abstraction, abstract representation (a mathematical model, model) of a real world finance, financial situation. This is a mathematical model designed to represent (a simplified version of) the perfor ...

s. The degree essentially explores how rational investors would apply

decision theory Decision theory (or the theory of choice; not to be confused with choice theory) is a branch of applied probability theory concerned with the theory of making decisions based on assigning probabilities to various factors and assigning numerical ...

to the problem of

investment Investment is the dedication of money to purchase of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. In finance, the purpose of investing i ...

. Investment under "

certainty Certainty (also known as epistemic certainty or objective certainty) is the epistemic property of beliefs which a person has no rational grounds for doubting. One standard way of defining epistemic certainty is that a belief is certain if and ...

" is initially considered (

Fisher separation theorem In economics, the Fisher separation theorem asserts that the primary objective of a corporation will be the maximization of its present value, regardless of the preferences of its shareholders. The theorem therefore separates management's "product ...

, "theory of investment value", Modigliani-Miller theorem). "Choice under uncertainty" is then introduced, and the twin assumptions of

rationality Rationality is the quality of being guided by or based on reasons. In this regard, a person acts rationally if they have a good reason for what they do or a belief is rational if it is based on strong evidence. This quality can apply to an abil ...

and

market efficiency The efficient-market hypothesis (EMH) is a hypothesis in financial economics that states that asset prices reflect all available information. A direct implication is that it is impossible to "beat the market" consistently on a risk-adjusted bas ...

lead to

modern portfolio theory Modern portfolio theory (MPT), or mean-variance analysis, is a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk. It is a formalization and extension of diversificatio ...

and the

CAPM CAPM may refer to: * Capital asset pricing model, a fundamental model in finance * Certified Associate in Project Management, an entry-level credential for project managers {{Disambig ...

, and to the Black–Scholes theory for

option pricing In finance, a price (premium) is paid or received for purchasing or selling options. This article discusses the calculation of this premium in general. For further detail, see: for discussion of the mathematics; Financial engineering for the impl ...

. Where the program emphasizes economics, the curriculum is extended: it explores phenomena where these assumptions do not hold ( noise trading,

market microstructure Market microstructure is a branch of finance concerned with the details of how exchange occurs in markets. While the theory of market microstructure applies to the exchange of real or financial assets, more evidence is available on the microstructu ...

behavioural finance Behavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors on the decisions of individuals or institutions, such as how those decisions vary from those implied by classical economic theory ...

) and it discusses models which are further generalised (

arbitrage pricing theory In finance, arbitrage pricing theory (APT) is a multi-factor model for asset pricing which relates various macro-economic (systematic) risk variables to the pricing of financial assets. Proposed by economist Stephen Ross in 1976, it is widely beli ...

, continuous time finance /

Martingale pricing Martingale pricing is a pricing approach based on the notions of martingale and risk neutrality. The martingale pricing approach is a cornerstone of modern quantitative finance and can be applied to a variety of derivatives contracts, e.g. options ...

) or extended ( Multi-factor models, models of the short rate,

Intertemporal CAPM Within mathematical finance, the Intertemporal Capital Asset Pricing Model, or ICAPM, is an alternative to the CAPM provided by Robert Merton. It is a linear factor model with wealth as state variable that forecast changes in the distribution of ...

Black–Litterman model In finance, the Black–Litterman model is a mathematical model for portfolio allocation developed in 1990 at Goldman Sachs by Fischer Black and Robert Litterman, and published in 1992. It seeks to overcome problems that institutional investors hav ...

). Coursework here is often titled "

Asset pricing In financial economics, asset pricing refers to a formal treatment and development of two main Price, pricing principles, outlined below, together with the resultant models. There have been many models developed for different situations, but cor ...

" and "Corporate finance theory". Economics focused programs (often) separately cover

microeconomics Microeconomics is a branch of mainstream economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. Microeconomics fo ...

and /or

as foundational topics. * Application of the economic principles includes

asset allocation Asset allocation is the implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor's risk tolerance, goals and investment tim ...

and valuation, and covers specific

financial instrument Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. They can be cash (currency), evidence of an ownership interest in an entity or a contractual right to receive or deliver in the form ...

s — such as

fixed income Fixed income refers to any type of investment under which the borrower or issuer is obliged to make payments of a fixed amount on a fixed schedule. For example, the borrower may have to pay interest at a fixed rate once a year and repay the prin ...

equities In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a company ...

derivatives The derivative of a function is the rate of change of the function's output relative to its input value. Derivative may also refer to: In mathematics and economics * Brzozowski derivative in the theory of formal languages * Formal derivative, an ...

foreign exchange The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all as ...

— and their portfolios. The aim here is twofold: firstly, to complement the theory; secondly, providing graduates with practical market knowledge. In the economics-focused degrees, this coverage may (will) be of secondary importance, while in the professional degrees it is a major component, and often includes separate course work in (practical)

corporate finance Corporate finance is the area of finance that deals with the sources of funding, the capital structure of corporations, the actions that managers take to increase the Value investing, value of the firm to the shareholders, and the tools and anal ...

, portfolio management and

financial risk management Financial risk management is the practice of protecting economic value in a firm by using financial instruments to manage exposure to financial risk - principally operational risk, credit risk and market risk, with more specific variants as liste ...

Macroeconomics Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole. For example, using interest rates, taxes, and ...

is also usually included; often though, as opposed to covering macroeconomic theory in general, the topics are applied and / or finance related with a focus on modelling and forecasting the relationships between

asset class In finance, an asset class is a group of financial instruments that have similar financial characteristics and behave similarly in the marketplace. We can often break these instruments into those having to do with real assets and those having ...

es and their expected

returns Return may refer to: In business, economics, and finance * Return on investment (ROI), the financial gain after an expense. * Rate of return, the financial term for the profit or loss derived from an investment * Tax return, a blank document or t ...

. * The modelling curriculum complements both of the above. The theory is augmented via the study of

econometrics Econometrics is the application of Statistics, statistical methods to economic data in order to give Empirical evidence, empirical content to economic relationships.M. Hashem Pesaran (1987). "Econometrics," ''The New Palgrave: A Dictionary of ...

, financial time series and

statistical model A statistical model is a mathematical model that embodies a set of statistical assumptions concerning the generation of Sample (statistics), sample data (and similar data from a larger Statistical population, population). A statistical model repres ...

ling, with a focus on the

empirical Empirical evidence for a proposition is evidence, i.e. what supports or counters this proposition, that is constituted by or accessible to sense experience or experimental procedure. Empirical evidence is of central importance to the sciences and ...

and statistical testing of economic theory,Birkbeck Financial Economics (MSc)
/ref> and on developing and documenting new econometric models. Students are taught to model using

statistical packages Statistical software are specialized computer programs for analysis in statistics and econometrics. Open-source * ADaMSoft – a generalized statistical software with data mining algorithms and methods for data management * ADMB – a software ...

such as

SAS SAS or Sas may refer to: Arts, entertainment, and media * ''SAS'' (novel series), a French book series by Gérard de Villiers * ''Shimmer and Shine'', an American animated children's television series * Southern All Stars, a Japanese rock ba ...

and

EViews EViews is a statistical package for Microsoft Windows, Windows, used mainly for time-series oriented econometrics, econometric analysis. It is developed by Quantitative Micro Software (QMS), now a part of IHS Inc., IHS. Version 1.0 was released ...

. The applications are reinforced through the computer based implementation of the more complex problems (often including numeric methods for option pricing,

Value at risk Value at risk (VaR) is a measure of the risk of loss for investments. It estimates how much a set of investments might lose (with a given probability), given normal market conditions, in a set time period such as a day. VaR is typically used by ...

, constructing efficient portfolios and yield curve modeling). Here, though, the focus is typically on the ''concept'' as opposed to the modelling, ''

per se Per se may refer to: * ''per se'', a Latin phrase meaning "by itself" or "in itself". * Illegal ''per se'', the legal usage in criminal and antitrust law * Negligence ''per se'', legal use in tort law *Per Se (restaurant) Per Se is a New Ameri ...

'', and may therefore be limited to the

spreadsheet A spreadsheet is a computer application for computation, organization, analysis and storage of data in tabular form. Spreadsheets were developed as computerized analogs of paper accounting worksheets. The program operates on data entered in cel ...

environment:

Computational finance Computational finance is a branch of applied computer science that deals with problems of practical interest in finance.Rüdiger U. Seydel, '' tp://nozdr.ru/biblio/kolxo3/F/FN/Seydel%20R.U.%20Tools%20for%20Computational%20Finance%20(4ed.,%20Springe ...

is the domain of specialized degrees, although some Financial Economics programs do emphasize mathematical modelling and programming.

Comparison with other qualifications

There is some overlap with programs in

financial engineering Financial engineering is a multidisciplinary field involving financial theory, methods of engineering, tools of mathematics and the practice of programming. It has also been defined as the application of technical methods, especially from mathema ...

computational finance Computational finance is a branch of applied computer science that deals with problems of practical interest in finance.Rüdiger U. Seydel, '' tp://nozdr.ru/biblio/kolxo3/F/FN/Seydel%20R.U.%20Tools%20for%20Computational%20Finance%20(4ed.,%20Springe ...

and

mathematical finance Mathematical finance, also known as quantitative finance and financial mathematics, is a field of applied mathematics, concerned with mathematical modeling of financial markets. In general, there exist two separate branches of finance that require ...

; see

(MQF). These degrees aim to train practitioners and "quants" — i.e. specialists in

and risk analysis — as opposed to

economist An economist is a professional and practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this ...

s, and their curricula are therefore weighted toward

stochastic calculus Stochastic calculus is a branch of mathematics that operates on stochastic processes. It allows a consistent theory of integration to be defined for integrals of stochastic processes with respect to stochastic processes. This field was created an ...

numerical methods Numerical analysis is the study of algorithms that use numerical approximation (as opposed to symbolic manipulations) for the problems of mathematical analysis (as distinguished from discrete mathematics). It is the study of numerical methods th ...

, simulation techniques and programming, and are quantitative (well) beyond the level of the Financial Economics degree. Entrance requirements are similarly more mathematical. On the other hand, coverage of financial and economic theory, and econometrics, while significant, is comparatively secondary. As mentioned, some Financial Economics programs are substantially quantitative; these differ little from the MQF. The overlap with general finance degrees, such as a

(MSF) or an M.B.A. in finance, is further limited, particularly where the Financial Economics program is theory oriented. These degrees are focused on

financial management Financial management is the business function concerned with profitability, expenses, cash and credit, so that the "organization may have the means to carry out its objective as satisfactorily as possible;" the latter often defined as maximizin ...

and

investment management Investment management is the professional asset management of various securities, including shareholdings, bonds, and other assets, such as real estate, to meet specified investment goals for the benefit of investors. Investors may be institut ...

, and are practice oriented with limited exposure to the underlying economic theory. However, since these courses train graduates in the ''use'' of the models developed in Financial Economics, the theory is (sometimes) covered in the context of a (basic) understanding of model assumptions. Similar comments apply to professional certifications such as the

Chartered Financial Analyst The Chartered Financial Analyst (CFA) program is a postgraduate professional certification offered internationally by the American-based CFA Institute (formerly the Association for Investment Management and Research, or AIMR) to investment and fina ...

(CFA) designation. The

Master of Finance The Master of Finance is a master's degree awarded by universities or graduate schools preparing students for careers in finance. The degree is often titled Master in Finance (M.Fin., MiF, MFin), or Master of Science in Finance (MSF in North Am ...

(M.Fin.) and

M.Sc. A Master of Science ( la, Magisterii Scientiae; abbreviated MS, M.S., MSc, M.Sc., SM, S.M., ScM or Sc.M.) is a master's degree in the field of science awarded by universities in many countries or a person holding such a degree. In contrast to ...

Finance, as opposed to the ''MSF'', have a significant theory component (as well as quantitative component), and largely overlap with the Masters in Financial Economics.

Notes

References

{{Academic degrees Financial economics

Finance Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...

Economics education

Structure

Comparison with other qualifications

See also

Notes

References