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Principles of Financial Economics

2nd Edition

$62.99 (X)

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  • Date Published: August 2014
  • availability: Available
  • format: Paperback
  • isbn: 9781107673021

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  • This new edition provides a rigorous yet accessible graduate-level introduction to financial economics. Since students often find the link between financial economics and equilibrium theory hard to grasp, less attention is given to purely financial topics, such as valuation of derivatives, and more emphasis is placed on making the connection with equilibrium theory explicit and clear. This book also provides a detailed study of two-date models because almost all of the key ideas in financial economics can be developed in the two-date setting. Substantial discussions and examples are included to make the ideas readily understandable. Several chapters in this new edition have been reordered and revised to deal with portfolio restrictions sequentially and more clearly, and an extended discussion on portfolio choice and optimal allocation of risk is available. The most important additions are new chapters on infinite-time security markets, exploring, among other topics, the possibility of price bubbles.

    • Stresses the link between financial economics and equilibrium theory
    • The analysis aims to be comparable in rigor to the best work in microeconomics; at the same time, the authors provide ample discussion and examples that make the ideas readily understandable
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    Reviews & endorsements

    "With this new edition, LeRoy and Werner have solidified the standing of their Principles of Financial Economics as the ideal introduction to neoclassical asset pricing models. The coverage is authoritative, rigorous, elegant, and now even more comprehensive."
    Darrell Duffie, Dean Witter Distinguished Professor of Finance, Graduate School of Business, Stanford University, California

    "This remains the best textbook that marries general equilibrium foundations to the insights and tools of finance, with the addition of a wonderfully lucid analysis of infinite horizon models - with bubbles or au naturel. This is a required text for my introductory graduate finance course."
    Stephen A. Ross, Franco Modigliani Professor of Financial Economics, Sloan School, Massachusetts Institute of Technology

    "A tour de force of rigor, readability, and clarity. The book seamlessly introduces the beginning doctoral student to financial economics as a natural extension of microeconomic and general equilibrium theory. The book, written by two of the profession’s leading experts, is unique."
    Rajnish Mehra, Arizona State University

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    Product details

    • Edition: 2nd Edition
    • Date Published: August 2014
    • format: Paperback
    • isbn: 9781107673021
    • length: 370 pages
    • dimensions: 254 x 177 x 22 mm
    • weight: 0.64kg
    • contains: 19 b/w illus.
    • availability: Available
  • Table of Contents

    Preface
    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.

  • Authors

    Stephen F. LeRoy, University of California, Santa Barbara
    Stephen F. LeRoy is Professor of Economics Emeritus at the University of California, Santa Barbara. Early in his career, he was an economist in the research departments of the Federal Reserve Bank of Kansas City and the Board of Governors of the Federal Reserve System. He then moved to the economics department at the University of California, Santa Barbara. He also served as Carlson Professor of Finance in the Carlson School of Management, University of Minnesota. He has had visiting appointments at the University of California, Berkeley, the University of California, Davis, the California Institute of Technology, and the University of Chicago. He earned his PhD in economics from the University of Pennsylvania.

    Jan Werner, University of Minnesota
    Jan Werner is Professor of Economics at the University of Minnesota. He has taught at the Pompeu Fabra University, Barcelona, the Institute for Advanced Studies in Vienna, and the Central University of Finance and Economics, Beijing. He has had visiting appointments at the University of Bonn, the European University Institute, Florence, and Université Paris Dauphine. He serves on the editorial boards of Economic Theory, the Journal of Mathematical Economics, the Annals of Finance, and the Central European Journal of Economic Modeling and Econometrics. He earned his PhD in economics from the University of Bonn.

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