A master's degree in Financial Economics provides a rigorous understanding of theoreticalfinance and the economic framework upon which that theory is based. The degree is postgraduate, and usually incorporates a thesis or research component. Programs may be offered jointly by the business school and the economics department. The nature of the degree differs by university. Generally, the degree is largely theoretical, and prepares graduates for research positions, for doctoral study in economics, or for roles in applied economics. Some are positioned as professional degrees, preparing graduates for careers in investment banking and finance, and are comparable to the Master of Science in Finance, 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. Closely related degrees include the "Master of Finance and Economics" and the "Master of Economics 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 the fourth ranked worldwide amongst all Masters in Finance programs.
Structure
Masters in Financial Economics are usually one to one and a half years in duration, and typically include a thesis or research component. The programs require a bachelor's degree prior to admission, but do not require an undergraduate major in finance or economics; a typical requirement is exposure to calculus and differential equations, statistics and probability theory, and linear algebra. Many programs include a review of these topics as an admission- or preliminary course. The curriculum 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 under uncertainty in the context of the financial markets, and the resultant economic and financial models. The degree essentially explores how rational investors would apply decision theory to the problem of investment. Investment under "certainty" is initially considered. "Choice under uncertainty" is then introduced, and the twin assumptions of rationality and market efficiency lead to modern portfolio theory and the CAPM, and to the Black–Scholes theory for option pricing. Where the program emphasizes economics, the curriculum is extended: it explores phenomena where these assumptions do not hold and it discusses models which are further generalised or extended. Coursework here is often titled "Asset pricing" and "Corporate finance theory". Economics focused programs separately cover microeconomics and /or decision theory as foundational topics.
There is some overlap with programs in financial engineering, computational finance and mathematical finance; see Master of Quantitative Finance. These degrees aim to train practitioners and "quants" — i.e. specialists in derivatives, fixed income and risk analysis — as opposed to economists, and their curricula are therefore weighted toward stochastic calculus, numerical methods, simulation techniques and programming, and are quantitative 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 Master of Science in Finance 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, corporate finance and investment management, and are practice oriented with limited exposure to the underlying economic theory. Since these courses train graduates in the use of the models developed in Financial Economics, the theory is covered in the context of a understanding of model assumptions. Similar comments apply to professional certifications such as the Chartered Financial Analyst designation. The Master of Finance and M.Sc. Finance, as opposed to the MSF, have a significant theory component, and largely overlap with the master's in Financial Economics.
