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Finance

Requirements 2007-2008

The Stanford program of doctoral study in finance teaches methods of basic and applied research. Students are encouraged to develop their technical skills and knowledge of economics to the point where they are able to conceive, organize, and complete original studies in the field of financial economics. The program is not an extension of MBA training; it does not aim to produce highly sophisticated business practitioners of finance. Its purpose is to produce critical researchers with broad and deep analytical skills. A variety of methods are used to foster these abilities, including required and recommended courses, seminar participation, and student research papers. The faculty continually update teaching methods and course requirements in a continuing effort to find better ways of preparing students to do research.

I. Preparation in Quantitative Methods

The study of financial economics requires a grasp of several types of basic mathematics. Students must enter with or very quickly acquire knowledge of the concepts and techniques of:

Course Level	Title
MATH 41 and 42	Calculus
MATH 51	Linear Algebra and Differential Calculus of Several Variables
MATH 113	Linear Algebra and Matrix Theory
STATS 116	Theory of Probability
STATS 200	Introduction to Statistical Inference

It is strongly advised that students without a strong and recent background in calculus, linear algebra, or statistics come to Stanford in June to take courses to strengthen any weak areas.

Computer programming skills are necessary in coursework (as early as the first quarter of the first year) and in research. If students do not have adequate computer programming skills, they may wish to take a computer programming course before they arrive at Stanford or take an appropriate Stanford computer science course while here.

II. General Program Requirement (GPR)¹

All students must complete at least two courses of the general program requirement during their first year of study. All three must be completed by the end of the second year. Each course must be passed with a grade of P or B- or better. Interpretation of the LP grade will be determined on a case by case basis.

Note: Any changes to the General Program Requirement (GPR) or Field Course Requirement (FQR) will be "grandfathered. "Students are responsible for fulfilling the requirements in place at the time they entered the program.

¹ In rare cases, the Director of the PhD Program may waive a general program requirement for a student based on similar PhD-level coursework completed elsewhere.

² Substitutions should be arranged through the doctoral liaison.

III. Field Course Requirement

All Finance Students must take:
MGTECON 604	Econometric Methods II
FIN 620	Financial Markets I
FIN 621	Financial Markets II
FIN 624	Corporate Finance Theory
FIN 625	Empirical Finance

Each course must be passed with a grade of P or B- or better. Interpretation of the LP grade will be determined on a case by case basis. In some situations one or more of these required courses may not be offered. If any one of these required courses is not offered in each of the first three years a student is in residence, then the requirement to take the course will be waived for the student. Students must receive a passing grade on a field examination, a research paper, and a dissertation proposal.

IV. Typical Course Schedule

Sample coursework outlines are shown below. Each student discusses his or her individual program with a faculty advisor, who must approve the chosen courses. Students who have little institutional knowledge may want to take some of the MBA courses offered in the School. The following program is an example of a possible course schedule; university scheduling of these courses may fluctuate across quarters.

First Year

Second Year

Fall Quarter
FINANCE 629	Finance Pre-Seminar Reading course	Required
MGTECON 601 or   MGTECON602 or MGTECON 613 or ECON 203	Plus one of the following: Microeconomics II     Auctions, Bargaining, and Pricing   Game Theory (not offered 06-07)   Price and Allocation Theory II
Spring Quarter
FINANCE 629	Finance Pre-Seminar Reading course	Required

Third Year

Recommended Quantitative and Applied Electives

Typical Quantitative Skills Electives
MATH 171	Intro to Real Analysis	Strongly recommended if you have not had real analysis
MATH 175	Elementary Functional Analysis	Follows Math 171, recommended by past students
MATH 136	Stochastic Processes	Similar topics to 310A, but focused on applications to stochastic processes. Leads to Math 236.
MATH 236	Stochastic Differential equations	Recommended by past students
MS&E 313	Vector Space Optimization	Recommended by past students
MS&E 322	Stochastic Calculus and Control	Recommended by past students
STATS 310A-C	Theory of Probability	This is same as Math 230A. STATS 310A-B-C is the advanced probability sequence.
MATH 180	Intro to Financial Markets
MS&E 342	Advanced Investment Science	Derivatives pricing methods
MATH 241	Mathematical Finance	Derivatives pricing methods

Typical Applied Electives
ACCT 610-612	Seminar in Accounting Research	One of ACCT 610-612 is required
ECON 281-290	Micro / Contracts / Incentives	These courses cover theory relevant to finance, especially corporate finance (& esp. 282-283)
ECON 273-275	Advanced Econometrics	Useful for empirical finance
ECON 210-212 ECON 233-235	Macroeconomics	Relevant for asset pricing research; also may cover dynamic contracting models (see esp. 211, 234)

V. Elective Courses

Usually, an individual will specialize in theoretical or empirical research. Students are encouraged to select their electives so as to maximize their skills in one of these two types of research but to have sufficient breadth in the other.

The following is a categorization of some useful electives for financial economists. Usually students take a total of about 8 to 10 elective courses from the lists below:

Theoretical Research:
ACCT 610: Seminar in Accounting Research
OIT 661: Foundation of Operations/Information Systems
ECON 280: Welfare Economics
ECON281: Economics of Uncertainty
ECON 282: Theory of Information and Organization
ECON 287: General Equilibrium Theory
EES 253: Optimal Dynamic Systems
EES 263: Principles of Optimization
MATH 116: Fundamental; Concepts in Analysis
MATH 131: Partial Differential Equations I
MATH 205A: Theory of Functions of a Real Variable
STATS 217-218: Introduction to Stochastic Processes
STATS 310A,B,C: Advanced Probability
STATS 317, 318: Stochastic Processes

Empirical Research:
ACCT 612: Seminar in Accounting Research
MGTECON 604: Econometric Methods II
MGTECON 609: Seminar in the Application of Economic Theory to Econometrics
MGTECON 611: Experimental Methods in Economics
GSBGEN 640: Multivariate Analysis
ECON 270: Econometrics I
ECON 271: Econometrics II
ECON 272: Econometrics III
EES 263: Principals of Optimization
STATS 217-218: Introduction to Stochastic Processes
STATS 200: Statistical Inference
STATS 310A,B,C: Theoretical Statistics

Other useful electives for financial economists include:
ACCT 612: Seminar in Accounting Research
MGTECON 602: Contract Theory and Organizations
ECON 203: Price and Allocation Theory II
ECON 210: Theory of Income and Economic Fluctuations I (Macroeconomics)

Students wishing to specialize in international finance and/or monetary theory should consider:
FINANCE 323: International Financial Management
FINANCE 333: International Financial Markets
FINANCE 334: Global Financial Risk Management
ECON 211: Theory of Income and Economic Fluctuations I
ECON 230: Monetary Theory
ECON 265: International Finance
ECON 266: International Trade Theory and Development

Depending on a student's background and interests, there are a number of applied MBA-level elective courses in financial theory. They include:

FINANCE 312: Evaluating Financial Statement Information
FINANCE 320: Fixed Income Securities: Instruments and Management
FINANCE 321: Investment Management and Entrepreneurial Finance
FINANCE 322: Management of Financial Institutions
FINANCE 324: Corporate Finance
FINANCE 328: Investment Theory and Portfolio Management
FINANCE 325: Topics in Corporate Finance
FINANCE 331: Corporate Financial Risk Management
FINANCE 329: Investment Seminar: Seminars on various topics including pension funds, economics and regulations of financial institutions, mutual funds, gambling, corporate finance, applied financial theory, and advanced investment management

There are many other courses taken by PhD Students that are offered in departments outside the GSB, such as Computer Science, Economics, Management Science and Engineering, Mathematics, Political Science, Psychology, Sociology, and Statistics. Descriptions of these course offerings can be found in the Stanford Bulletin, published by the Registrar's Office (650-725-1879).

VI. Assessment of Progress

Students normally take courses on a graded rather than pass/fail basis. Students are expected to participate regularly in the Finance Workshops organized by the field faculty. Before students are permitted to begin work on a dissertation, they must satisfy the finance faculty with respect to the following:

The Finance field examination: The field examination is given at the end of the summer after the first year. The examination is not solely on course material; it also tests the student's ability to apply knowledge, intuition, and technical skills to problems in financial economics, some of which the student may not have encountered in coursework.

Faculty Advisor: Students are expected to identify and sign up with a faculty advisor by the start of spring quarter in the second year.

Summer research paper: During the summer following the first year, students are required to write an original research paper to be presented during the fall quarter of the second year. A second research paper is required at the end of the second year to be presented fall quarter of the third year. Both papers are required for admission to candidacy.

Dissertation proposal: The dissertation proposal is designed to provide direct and timely faculty interaction with doctoral students planning their dissertation research. By the start of spring quarter of the third year, or later if an exception is expressly granted by faculty, the student shall submit a written dissertation proposal to the finance faculty. The following statement shall appear on the cover page of the proposal, signed by two finance faculty members: "I have read this document and find that it is satisfactory as a proposal for doctoral dissertation research." While the length of the document is not specified, the document shall be of sufficient detail as a basis for the above statement. (For example, a ten-page proposal would be sufficient in many cases.)

Annual evaluations: The finance faculty continuously evaluates each student's progress in terms of research papers, oral presentations of research papers, the field examination, coursework, and research assistant work. A formal annual review process each spring quarter takes into account all of these factors to determine the student's standing in the program and to determine financial aid for the next academic year. Poor performance in research, the field examination, or coursework may warrant dismissal from the program.

Incompletes: Grades of "incomplete'' that are not replaced with satisfactory grades by the end of the quarter following the one in which they were received are viewed as evidence of the student's inability to handle the Stanford workload. Thus, the carrying of incompletes beyond one quarter may adversely affect the student's status in the program. Furthermore, doctoral students in finance must remove incompletes from their records prior to admission to candidacy. Also, note the University requirement that a student may not have outstanding incompletes and be permitted to register for terminal graduate registration.

VII. Candidacy

The field requirement consists of the field course requirement, the field examination, and the research paper requirement. Students who have completed the general program requirement, the field requirement, the field examination, and who, in addition, have an approved reading committee are considered for admission to candidacy.

VIII. Dissertation Research

Dissertation research is conducted under the supervision of the finance faculty and very frequently under the joint supervision of finance faculty and faculty from operations, information and technology, accounting, and economic analysis and policy. On occasion, a supervisor from the Department of Economics has been chosen, depending on the research topic. It is usually very advantageous to choose as a dissertation topic a subject in which at least one member of the GSB finance faculty has an active interest. It is hard to make headway with topics on which no local expertise is present.

IX. Program Completion

Students are expected to complete the oral exam before the end of he summer of the fourth year in residence. If special circumstances warrant delay, the field liaison in consultation with the advisor may waive this requirement and allow the oral exam to be completed during the fifth year in residence. The dissertation is expected to be completed and signed by the advisor prior to the end of the summer quarter of the fifth year. Funding will not be provided beyond the fifth year. Only in extraordinary cases may the field liaison, after consultation with the Director of the Doctoral Program and the student's advisor, permit completion to be delayed to the sixth year.

X. Advice to Students

The faculty cautions students to avoid certain pitfalls that may become substantial handicaps in the latter part of their studies. The first such pitfall is excessive concentration on defined tasks such as course or RA work at the expense of working up to one's own ideas and writing papers. Students must learn how to undertake new research, which is different from studying the contributions of others. When students encounter a point of view with which they disagree, they should linger over it and try to clearly work out what is wrong with it. Research and thesis topics grow out of efforts to correct and extend ongoing studies found in the literature.

The second pitfall is embarrassment at speaking out and asking questions in classes and seminars. If students do not ask questions, their questions are not answered. Furthermore, if students do not speak out when they have something of interest to say, their fellow students and the faculty are deprived of a valuable exchange of ideas. In the careers of doctoral graduates, oral presentation and debate are daily undertakings. The teaching structure at the Stanford GSB provides a unique opportunity to learn these skills.

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