Theory of Financial Decision MakingBased on courses developed by the author over several years, this book provides access to a broad area of research that is not available in separate articles or books of readings. Topics covered include the meaning and measurement of risk, general single-period portfolio problems, mean-variance analysis and the Capital Asset Pricing Model, the Arbitrage Pricing Theory, complete markets, multiperiod portfolio problems and the Intertemporal Capital Asset Pricing Model, the Black-Scholes option pricing model and contingent claims analysis, 'risk-neutral' pricing with Martingales, Modigliani-Miller and the capital structure of the firm, interest rates and the term structure, and others. |
Contents
List of Tables | vii |
List of Figures | ix |
Preface | xi |
Glossary of Commonly Used Symbols | xv |
Mathematical Introduction | xxi |
Utility Theory | 17 |
Arbitrage and Pricing The Basics | 43 |
The Portfolio Problem | 63 |
Intertemporal Models in Finance | 218 |
Discretetime Intertemporal Portfolio Selection | 233 |
An Introduction to the Distributions of ContinuousTime Finance | 257 |
ContinuousTime Portfolio Selection | 269 |
The Pricing of Options | 296 |
Review of Multiperiod Models | 327 |
An Introduction to Stochastic Calculus | 345 |
Advanced Topics in Option Pricing | 359 |
MeanVariance Portfolio Analysis | 80 |
Generalized Risk Portfolio Selection and Asset Pricing | 112 |
Portfolio Separation Theorems | 138 |
The Linear Factor Model Arbitrage Pricing Theory | 164 |
Equilibrium Models with Complete Markets | 184 |
General Equilibrium Considerations in Asset Pricing | 197 |
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Common terms and phrases
addition analysis assume assumption bond CAPM Chapter claims complete condition consider constant constraint consumption debt defined denote depend derived determined distribution dividends dominance economy effect efficient equal Equation equilibrium example exercise exists expected return factor firm follows given gives hedge hold increasing independent interest interest rate investment investor less limit linear market portfolio maturity mean mean-variance measure negative normal Note obtain optimal optimal portfolio option outcomes payoff period portfolio positive possible preferred probability problem proof proportional proposition random variable rate of return relation representative respect result risk aversion riskless asset risky asset satisfy securities separation shares single solution solve standard stochastic Substituting sufficient Suppose term theorem tion trading true utility function valid variable variance vector warrants wealth worth zero