Financial economics, risk and information

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Title:

Author:

Bianconi, Marcelo, 1956-

ISBN:

9789814355131

Personal Author:

Bianconi, Marcelo, 1956-

Edition:

2nd ed.

Publication Information:

Hackensack, NJ : World Scientific, 2012.

Physical Description:

xx, 475 p. : ill. ; 24 cm.

General Note:

First edition published 2003.

Contents:

Machine generated contents note: 1.Basic Mathematical Tools -- 1.1.Introduction -- 1.2.Integration -- 1.3.Basic Statistics -- 1.4.Basic Linear Algebra -- 1.5.Static Optimization -- 1.6.Notes on Stochastic Difference Equations -- 1.7.Dynamic Optimization in Discrete Time: Heuristics of Dynamic Programming in the Certainty Case -- 1.8.Stochastic Dynamic Optimization in Discrete Time -- 1.9.Notes on Stochastic Differential Equations -- 1.10.Stochastic Dynamic Optimization in Continuous Time -- 1.11.Summary -- References -- 2.Mean-Variance Approach to Financial Decision-Making -- 2.1.Introduction -- 2.2.Portfolio Mean Return and Variance -- 2.3.The Efficient Frontier -- 2.4.Two-Fund Theorem, the Risk-Free Asset and One-Fund Theorem -- 2.5.The Pricing of Assets in the Mean-Variance Framework and the No-Arbitrage Theorem -- 2.6.Summary -- References -- 3.Expected Utility Approach to Financial Decision-Making -- 3.1.Introduction --

Contents note continued: 3.2.The Von-Neumann-Morgenstern (VNM) Framework: Probability Distributions over Outcomes -- 3.3.Measurement of Risk Aversion -- 3.4.The Von-Neumann-Morgenstern (VNM) Framework: State Dependent Utility -- 3.5.Portfolio Choice and Comparative Statics with VNM State Independent Expected Utility -- 3.6.The Quadratic Utility Function -- 3.7.Diversification, Risk Aversion and Non-Systematic Risk -- 3.8.Summary I -- 3.9.Introduction to Mean-Variance Analysis with Expected Utility Based on Normal Distribution of Payoffs -- 3.10.The Payoffs -- 3.11.The Specific Functional Form for the Utility Function: Exponential Utility -- 3.12.The Individual Budget Constraint -- 3.13.The Equilibrium Allocation -- 3.14.Comparative Statics -- 3.15.Closed Form Solutions -- 3.16.Summary II -- 3.17.Introduction to Non-Additive Probabilities -- 3.18.The Cost of Knightian Uncertainty with Uncertainty Aversion -- 3.19.Risk Averse Bayesian Behavior -- 3.20.Summary III -- References --

Contents note continued: 4.Introduction to Systems of Financial Markets and the Value of Information -- 4.1.Introduction -- 4.2.Pricing Securities in a Linear Fashion -- 4.3.Optimal Portfolio Choice Problems -- 4.4.Pricing the States of Nature -- 4.5.Market Regimes: Complete versus Incomplete -- 4.6.Optimal Portfolio Choice and the Price of Elementary Securities (State Prices) -- 4.7.Individual Optimal Allocation under Complete Markets Regime: An Example -- 4.8.General Equilibrium under Complete Markets Regime: Full Risk Sharing -- 4.9.General Equilibrium under Incomplete Markets Regime -- 4.10.A Simple Geometrical Illustration of Market Regimes -- 4.11.Application to the Neoclassical Theory of the Firm -- 4.12.Summary I -- 4.13.The Value of Information in Financial Markets -- 4.14.Summary -- References -- 5.Contracts, Contract Design, and Agency Relationships -- 5.1.Introduction to Bilateral Relationships and Contracts --

Contents note continued: 5.2.Theories of the Firm --- Agency, Transactions Costs and Property Rights -- 5.3.Summary I -- 5.4.Introduction to Adverse Selection -- 5.5.The Principal-Agent Relationship -- 5.6.A Simple Example in Insurance Markets -- 5.7.Mechanism Design: A Problem of Price Discrimination -- 5.8.Adverse Selection in Credit Markets and the Possibility of Credit Rationing -- 5.9.Signaling -- 5.10.Summary II -- 5.11.Introduction to Moral Hazard -- 5.12.Finite Number of Actions and Outcomes, Principal and Agent both Risk Neutral -- 5.13.Variations with Finite Number of Actions, Principal Is Risk Neutral, Agent Is Risk Averse -- 5.14.Infinite Number of Actions and First Order Approach, Principal Is Risk Neutral, Agent Is Risk Averse -- 5.15.Summary III -- 5.16.Asset Returns and Moral Hazard -- 5.17.Basic Model -- 5.18.Equilibrium Asset Returns -- 5.19.Summary IV -- 5.20.General Equilibrium Approach to Asymmetric Information --

Contents note continued: 5.21.Basic Structure, Pareto Optimality and Decentralized Competitive Equilibrium -- 5.22.An Insurance Problem with Adverse Selection -- 5.23.Summary V -- References -- 6.Discrete Time Dynamics -- 6.1.Time and Markets -- 6.2.Introduction to Financial Contracts -- 6.3.Summary I -- 6.4.General Equilibrium and Asset Pricing under Uncertainty with Complete Markets -- 6.5.General Equilibrium under Uncertainty: Two Equivalent Approaches -- 6.6.Pricing Contingent Claims in the Two-Period Economy with Complete Markets -- 6.7.Introduction to the Multi-Period Economy -- 6.8.Conditional and Transitional Probabilities, Markov Processes, and Conditional Moments -- 6.9.The Multi-Period Economy Again -- 6.10.Asset Prices in an Infinite Horizon Exchange Economy -- 6.11.Excess Returns -- 6.12.Summary II -- 6.13.Stochastic Monetary Theory -- 6.14.Fisher Equation and Risk -- 6.15.Summary III -- 6.16.The Financial Problem of the Firm in General Equilibrium --

Contents note continued: 6.17.Summary IV -- 6.18.Risk Aversion, Intertemporal Substitution and Asset Returns -- 6.19.Summary V -- References -- 7.Continuous Time Dynamics -- 7.1.Asset Price Dynamics, Options and the Black-Scholes Model -- 7.2.Discrete Time Random Walks -- 7.3.A Multiplicative Model in Discrete Time and a Preview of the Lognormal Random Variable -- 7.4.Introduction to Random Walk Models of Asset Prices in Continuous Time -- 7.5.A Multiplicative Model of Asset Prices in Continuous Time -- 7.6.Introduction to Ito's Lemma and the Lognormal Distribution Again -- 7.7.Ito's Formula: The General Case -- 7.8.Asset Price Dynamics and Risk -- 7.9.Options -- 7.10.The Black-Scholes Partial Stochastic Differential Equation -- 7.11.The Black-Scholes Formula for a European Call Option -- 7.12.Summary I -- 7.13.Introduction to Equilibrium Continuous Time Stochastic Models -- 7.14.Consumption Growth and Portfolio Choice with Logarithmic Utility --

Contents note continued: 7.15.Consumption Growth and Portfolio Choice with CRRA Utility -- 7.16.Capital Accumulation and Asset Returns -- 7.17.Risk Aversion and Intertemporal Substitution -- 7.18.Summary II -- References.

Abstract:

Financial Economics, Risk and Information presents the fundamentals of finance in static and dynamic frameworks with focus on risk and information.

Subject Term:

Finance -- Mathematical models.

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Library	Material Type	Item Barcode	Shelf Number	Copy	Status
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Summary

Financial Economics, Risk and Information presents the fundamentals of finance in static and dynamic frameworks with focus on risk and information. The objective of this book is to introduce undergraduate and first-year graduate students to the methods and solutions of the main problems in finance theory relating to the economics of uncertainty and information. The main goal of the second edition is to make the materials more accessible to a wider audience of students and finance professionals. The focus is on developing a core body of theory that will provide the student with a solid intellectual foundation for more advanced topics and methods. The new edition has streamlined chapters and topics, with new sections on portfolio choice under alternative information structures. The starting point is the traditional mean-variance approach, followed by portfolio choice from first principles. The topics are extended to alternative market structures, alternative contractual arrangements and agency, dynamic stochastic general equilibrium in discrete and continuous time, attitudes towards risk and towards inter-temporal substitution in discrete and continuous time; and option pricing. In general, the book presents a balanced introduction to the use of stochastic methods in discrete and continuous time in the field of financial economics.