FIN 630 Wk 3 – Behavioral Finance Alan Greenspan coined the phrase “irrational exuberance” in late 1996 to describe the rapid growth in the stock market. Professor Robert Shiller, an economist at...

FIN 630 Wk 3 –

Behavioral Finance

Alan

Greenspan coined the phrase “irrational exuberance” in late 1996 to

describe the rapid growth in the stock market. Professor Robert Shiller, an

economist at Yale, has written a book by the same title (should I say he’s a

bear?). Actually, exuberance, rational or otherwise, is a characteristic of

behavioral economics and finance. Daniel Kahneman shared the 2002 Nobel Prize

in Economics for his work in the area. Start by reading a short piece from

CFO.com (.cfo.com/printable/article.cfm/3014027?f=options”>http://www.cfo.com/printable/article.cfm/3014027?f=options) and look elsewhere as you are

interested. My question is: how do behavioral considerations impact the way we

are doing valuation?

.umuc.edu/d2l/le/124556/discussions/topics/1099951/View”>Valuation of Mortgage-backed Securities – What

Went Wrong

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.gif” alt=”https://learn.umuc.edu/d2l/img/lp/pixel.gif”>Actions for Valuation of

Mortgage-backed Securities – What Went Wrong

Economic

recession of 2008-2009 had several causes, one of which was so called

“subprime crisis.” Financial institutions used sophisticated models

and simulation techniques to price mortgage-backed securities (MBS) and these

securities ended up being severely overpriced. What lessons for the future can

we learn from this mispricing of MBS? What precautionary mechanisms would you

suggest to avoid the repetition of this crisis in the future?