Teaching plan for the course unit

 

 

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General information

 

Course unit name: Cooperation and Strategy in Finance and Insurance

Course unit code: 568971

Academic year: 2019-2020

Coordinator: Pedro Calleja Cortes

Department: Department of Economic, Financial and Actuarial Mathematics

Credits: 2,5

Single program: S

 

 

Estimated learning time

Total number of hours 62.5

 

Face-to-face and/or online activities

22.5

 

-  Lecture with practical component

Face-to-face

 

22.5

Supervised project

20

Independent learning

20

 

 

Competences to be gained during study

 

General competences

— Knowledge forming the basis of original thinking in the development or application of ideas, typically in a research context.

— Capacity to apply the acquired knowledge to problem-solving in new or relatively unknown environments within broader (or multidisciplinary) contexts related to the field of study.

— Capacity to integrate knowledge and tackle the complexity of formulating judgements based on incomplete or limited information, taking due consideration of the social and ethical responsibilities involved in applying knowledge and making judgements.

— Capacity to communicate conclusions, judgements and the grounds on which they have been reached to specialist and non-specialist audiences in a clear and unambiguous manner.


Specific competences

— Capacity to analyse, design and assess actuarial and financial products.

— Capacity to understand the specific business, legal and accounting conditions of insurance and financial entities.

— Capacity to acquire a thorough overview of actuarial and financial research.

 

 

 

 

Learning objectives

 

Referring to knowledge

Classical theories mainly analyse financial and actuarial problems from the perspective of a single decision-maker. However, a broader view requires considering that agents interact in markets in which strategic and/or cooperative behaviours play an essential role. The moral hazard and principal-agent problems and classic models of reinsurance already take into account the issues of strategy, incomplete information or uncertainty in payment. From a cooperative point of view, consideration of the interests of all parties leads to discussion of the sharing of costs and earnings. In this context, this subject offers an analysis of these problems, taking as a frame of reference the methodology proposed by game theory.

— Analyse and formalise certain situations as non-cooperative games, identifying the players, available strategies and possible outcomes.

— Distinguish between static and dynamic situations and the role of the information that agents possess.

— Apply the Nash equilibrium concept, and its refinements, to deduce the behaviour of economic agents and critically evaluate their relevance in a complex context.

— Analyse the situations in which cooperation takes place, recognise the acceptable distributions, and acquire and analyse the data necessary to apply distributions and shares.

— Use acquired knowledge to evaluate the rigour and relevance of published research using game models, as well as to indicate their applicability in other contexts.

— Communicate the results of a research project clearly and concisely, both orally and in writing.

 

Referring to abilities, skills

With regard to the theory of non-cooperative games, the objectives are to be able to:

— Formalise simple or more complex situations as non-cooperative games, and identify the players, available strategies and possible outcomes.

— Apply the Nash equilibrium concept to deduce the foreseeable behaviour of economic agents.

— Interpret the balances obtained in the context of the problem and develop the capacity for critical analysis.

— Distinguish the particularities of dynamic games and static games with incomplete information, and apply the procedures of corresponding solutions.

— Analyse microeconomic models from a game perspective, especially competition in prices and quantities in an oligopolistic context.

— Analyse the role of information in the analysis of strategic situations, and especially in moral hazard and principal-agent risk models.

Concerning the theory of cooperative games, the objectives are to be able to:

— Formalise simple situations as cooperative games, and identify the players and the earnings of each coalition.

— Recognise the distributions that would be acceptable from a coalitional point of view.

— Apply profit sharing or cost criteria, and propose and discuss the properties of various types of distribution.

 

 

Teaching blocks

 

1. Non-cooperative models

1.1. Introduction: problems with several decision-makers; Utility

1.2. Strategy; Domination; Nash equilibria

1.3. Games with infinite strategies

1.4. Complete information; Dynamic models and perfect balance in sub-games

1.5. Incomplete information; Static and dynamic Bayesian games

1.6. Models of asymmetric information: the principal–agent problem and the moral hazard problem

2. Cooperative models

2.1. Cooperative games; The core of the game

2.2. Methods of distribution and solutions in cooperative games: properties

2.3. The Shapley value

2.4. Financial and actuarial applications: coherent risk measures

 

 

Teaching methods and general organization

 

The methodology used to accomplish the established objectives consists of lectures combining theoretical and practical content, and practical exercises to be completed throughout the course.

Classes are structured around the analysis of different examples, leading to the definition of the basic concepts and procedures, which are then applied to more complex examples. Thus, practical problem-solving exercises play a significant role in the achievement of the course objectives.

Students must demonstrate their understanding of the topics covered, and consult the bibliography when necessary as a complement to the information explained in class.

Practical exercises which are to be completed independently, outside the class schedule, are designed to consolidate reflection on the concepts and the use of techniques explained in class.

The timetable for these activities is posted in the classroom for the subject and in the corresponding location on the Virtual Campus, where the start date and deadline for submission are indicated. After the due date for each, the solution is also published.

 

 

Official assessment of learning outcomes

 

As a general rule, assessment will be continuous.

In cases where a student declares that he/she cannot meet the requirements for continuous assessment, the option of single assessment is available. This decision must be communicated in writing, with a copy for the student and another for the teacher, before the date of the first continuous assessment task as mentioned in the following paragraph. Continuous assessment is appropriate for students who regularly attend class.

Continuous assessment consists of a written examination and the submission of a series of independently completed exercises. The weighting of the examination and the exercises, as well as submission deadlines for the latter, is published on the Virtual Campus at the beginning of the course.

Assessment for the course is based on the following activities:

a) The exercises mentioned in the methodology, with a value of 40% of the final grade.
b) A final examination, with a value of 60% of the final grade.
c) In cases where participation/discussion or the presentation of an article has been notable, an additional score of up to 10% of the final grade may be awarded.

For a positive result in the subject, students must obtain a minimum score of 4 in both the exercises and the examination.

 

Examination-based assessment

Single assessment consists of an examination with both theoretical and practical questions, which will take place on the official single assessment date indicated.

Repeat assessment follows the same criteria as single assessment.


Evaluation of competences

Students will acquire a number of competences, mainly related to the capacity to take decisions. Game theory refers basically to the study of decision-making in conflict and cooperative environments. Therefore, all assessment activities are designed to help students analyse these situations and identify their elements.

 

 

Reading and study resources

Consulteu la disponibilitat a CERCABIB

Book

DIXIT, A.K.; NALEBUFF, B.J. El arte de la estrategia: la teoría de juegos, guía del éxito de sus negocios y en su vida diaria. Barcelona: Antoni Bosch, 2010.

  Popularisation book, which covers the main aspects of game theory in a general and non-technical manner.

Catāleg UB  Enllaç

GARDNER, R. Juegos para empresarios y economistas. Barcelona: Antoni Bosch, 1996.

  Textbook on the applied used of game theory to economic models. It has an undergraduate level.

Catāleg UB  Enllaç

OSBORNE, M. J. An introduction to game theory. New York: Oxford University Press, 2004.

  Book which covers with precision and informality the most important topics in game theory.

Catāleg UB  Enllaç

PÉREZ NAVARRO, J.; JIMENO PASTOR, J. L.; CERDÀ TENA, E. Teoría de juegos. Madrid: Prentice Hall, 2013.

  Book which formally defines concepts in a clear and precise manner. Includes exercises and proposals with solutions.

Catāleg UB  Enllaç

RAFELS, C. et al. Jocs cooperatius i aplicacions econòmiques. Barcelona: Edicions de la Universitat de Barcelona, 1999.

  Book which thoroughly analyses models of cooperative games.

Catāleg UB  Enllaç

RASMUSSEN, E. Games and Information: An Introduction to Game Theory (Fourth Edition). Chichester: Wiley-Blackwell, 2007.

  Excellent book that covers mainly the information aspect with game theory.

Catāleg UB  Enllaç

KELLY, A. Decision making using game theory: an introduction for managers. Cambridge: Cambridge University Press, 2003.

Catāleg UB  Enllaç