Principles of Financial Economicsby Stephen F. LeRoy, Jan Werner
Pub. Date: 11/28/2000
Publisher: Cambridge University Press
This book introduces graduate students in economics to the subfield of financial economics. It stresses the link between financial economics and equilibrium theory, devoting less attention to purely financial topics such as valuation of derivatives. Since students often find this link hard to grasp, the treatment aims to make the connection explicit and clear in each… See more details below
This book introduces graduate students in economics to the subfield of financial economics. It stresses the link between financial economics and equilibrium theory, devoting less attention to purely financial topics such as valuation of derivatives. Since students often find this link hard to grasp, the treatment aims to make the connection explicit and clear in each stage of the exposition. Emphasis is placed on detailed study of two-date models, because almost all of the key ideas in financial economics can be developed in the two-date setting. The analysis is intended to be comparable in rigor to the best work in microeconomics; at the same time, the authors provide enough discussion and examples to make the ideas readily understandable.
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Table of ContentsPreface; Part I. Equilibrium and Arbitrage: 1. Equilibrium in security markets; 2. Linear pricing; 3. Arbitrage and positive pricing; Part II. Valuation: 4. Valuation; 5. State prices and risk-neutral probabilities; Part III. Portfolio Restrictions: 6. Portfolio restrictions; 7. Valuation under portfolio restrictions; Part IV. Risk: 8. Expected utility; 9. Risk aversion; 10. Risk; Part V. Optimal Portfolios: 11. Optimal portfolios with one risky security; 12. Comparative statics of optimal portfolios; 13. Optimal portfolios with several risky securities; Part VI. Equilibrium Prices and Allocations: 14. Consumption-based security pricing; 15. Complete markets and Pareto-optimal allocations of risk; 16. Optimality in incomplete markets; Part VII. Mean-Variance Analysis: 17. The expectations and pricing kernels; 18. The mean-variance frontier payoffs; 19. Capital asset pricing model; 20. Factor pricing; Part VIII. Multidate Security Markets: 21. Equilibrium in multidate security markets; 22. Multidate arbitrage and positivity; 23. Dynamically complete markets; 24. Valuation; Part IX. Martingale Property of Security Prices: 25. Event prices, risk-neutral probabilities, and the pricing kernel; 26. Martingale property of gains; 27. Conditional consumption-based security pricing; 28. Conditional beta pricing and the CAPM; Part X. Infinite-Time Security Markets: 29. Equilibrium in infinite-time security markets; 30. Arbitrage, valuation, and price bubbles; 31. Arrow–Debreu equilibrium in infinite time.
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