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2017 | Buch

Prerequisites Kapitel lesen Erstes Kapitel lesen

Financial Markets Theory

Equilibrium, Efficiency and Information

verfasst von: Emilio Barucci, Claudio Fontana

Verlag: Springer London

Buchreihe : Springer Finance

Enthalten in: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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SUCHEN

Über dieses Buch

This work, now in a thoroughly revised second edition, presents the economic foundations of financial markets theory from a mathematically rigorous standpoint and offers a self-contained critical discussion based on empirical results. It is the only textbook on the subject to include more than two hundred exercises, with detailed solutions to selected exercises.
Financial Markets Theory covers classical asset pricing theory in great detail, including utility theory, equilibrium theory, portfolio selection, mean-variance portfolio theory, CAPM, CCAPM, APT, and the Modigliani-Miller theorem. Starting from an analysis of the empirical evidence on the theory, the authors provide a discussion of the relevant literature, pointing out the main advances in classical asset pricing theory and the new approaches designed to address asset pricing puzzles and open problems (e.g., behavioral finance). Later chapters in the book contain more advanced material, including on the role of information in financial markets, non-classical preferences, noise traders and market microstructure.
This textbook is aimed at graduate students in mathematical finance and financial economics, but also serves as a useful reference for practitioners working in insurance, banking, investment funds and financial consultancy. Introducing necessary tools from microeconomic theory, this book is highly accessible and completely self-contained.


Advance praise for the second edition:
"Financial Markets Theory is comprehensive, rigorous, and yet highly accessible. With their second edition, Barucci and Fontana have set an even higher standard!"Darrell Duffie, Dean Witter Distinguished Professor of Finance, Graduate School of Business, Stanford University

"This comprehensive book is a great self-contained source for studying most major theoretical aspects of financial economics. What makes the book particularly useful is that it provides a lot of intuition, detailed discussions of empirical implications, a very thorough survey of the related literature, and many completely solved exercises. The second edition covers more ground and provides many more proofs, and it will be a handy addition to the library of every student or researcher in the field."Jaksa Cvitanic, Richard N. Merkin Professor of Mathematical Finance, Caltech

"The second edition of Financial Markets Theory by Barucci and Fontana is a superb achievement that knits together all aspects of modern finance theory, including financial markets microstructure, in a consistent and self-contained framework. Many exercises, together with their detailed solutions, make this book indispensable for serious students in finance."Michel Crouhy, Head of Research and Development, NATIXIS

Inhaltsverzeichnis

Frontmatter
Chapter 1. Prerequisites
Abstract
This chapter briefly reviews the fundamentals of decision making in a certain environment. Starting from a discussion of preference relations, the agent’s utility maximization problem is introduced and the concepts of general equilibrium, Pareto optimality and aggregation are explained.
Emilio Barucci, Claudio Fontana
Chapter 2. Choices Under Risk
Abstract
This chapter presents the foundations of decision making problems in a risky environment. By introducing suitable axioms on the preference relation, the existence of an expected utility function representation is proved. We discuss the notions of risk aversion, risk premium and certainty equivalent and characterize stochastic dominance criteria for comparing random variables. The chapter ends with a discussion of mean-variance preferences and their relation with stochastic dominance and expected utility.
Emilio Barucci, Claudio Fontana
Chapter 3. Portfolio, Insurance and Saving Decisions
Abstract
In this chapter, in the context of a simple two-period economy, we study the optimal portfolio problem of a risk averse agent, first in the case of a single risky asset and then in the more general case of multiple risky assets. We present several comparative statics results as well as closed-form solutions. We then derive the mean-variance portfolio frontier and present its most important properties, also including a risk free asset. The chapter closes by considering optimal insurance problems and optimal consumption-saving problems in a two-period economy.
Emilio Barucci, Claudio Fontana
Chapter 4. General Equilibrium Theory and No-Arbitrage
Abstract
This chapter deals with general equilibrium theory in a risky environment, where agents interact in a financial market. The chapter starts by presenting the notion of Pareto optimality and its implications in terms of risk sharing. The concept of rational expectations equilibrium is introduced and characterized in the context of a two-period economy. Different financial market structures are considered, with a particular attention to the important case of complete markets. The last part of the chapter is devoted to the fundamental theorem of asset pricing, which relates the absence of arbitrage opportunities to the existence of a strictly positive linear pricing functional. The relation of this important result to the existence of an equilibrium of an economy and its implications for the valuation of financial assets are also discussed.
Emilio Barucci, Claudio Fontana
Chapter 5. Factor Asset Pricing Models: CAPM and APT
Abstract
In this chapter, on the basis of the general equilibrium theory developed in Chap. 4, we present some of the most important asset pricing models, including the Consumption Capital Asset Pricing Model (CCAPM), the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Theory (APT). The relations of these asset pricing models with the absence of arbitrage opportunities are also discussed. In this chapter, the theoretical presentation of the models and of their implications is accompanied by an overview of the empirical evidence reported in the literature. In particular, several asset pricing anomalies and puzzles are described and discussed.
Emilio Barucci, Claudio Fontana
Chapter 6. Multi-Period Models: Portfolio Choice, Equilibrium and No-Arbitrage
Abstract
In this chapter, we extend the analysis developed in the previous chapters to the case of dynamic multi-period economies. The chapter starts by studying the optimal investment-consumption problem of an individual agent in a multi-period setting, by relying on the dynamic programming approach. Under suitable assumptions on the utility function, closed-form solutions are derived. The chapter then proceeds by extending the general equilibrium theory established in Chap. 4 to a dynamic setting, introducing the notion of dynamic market completeness and analysing the aggregation property of the economy. The fundamental theorem of asset pricing is then established in a multi-period setting and its relation to the equilibrium of the economy is also discussed. Later in the chapter, the most important asset pricing relations presented in Chap. 5 are extended to a dynamic context and specialized for several classes of utility functions. The chapter ends by considering multi-period economies with an infinite time horizon and the possibility of asset price bubbles.
Emilio Barucci, Claudio Fontana
Chapter 7. Multi-Period Models: Empirical Tests
Abstract
This chapter is devoted to an extensive overview of the empirical evidence on classical asset pricing theory. In particular, the attention is focused on the empirical properties of the observed prices and returns and on several anomalies reported in the literature, including the excess volatility phenomenon, the predictability of asset returns, the equity premium puzzle, the risk free rate puzzle and other related asset pricing puzzles.
Emilio Barucci, Claudio Fontana
Chapter 8. Information and Financial Markets
Abstract
This chapter concerns the role of information in financial markets. The chapter starts by studying the value of information from the point of view of an individual agent and then proceeds by analysing the impact of information in the economy. This leads to the introduction of the notion of Green-Lucas equilibrium and, in particular, to the question of whether equilibrium prices transmit, aggregate and reveal the agents’ private information. This concept is intrinsically linked to the informational efficiency of financial markets and provides a microfoundation to the efficient markets theory. In the chapter, the possibility or the impossibility of informationally efficient markets is discussed and established in the context of several models. The chapter closes by briefly examining the case where agents may exhibit heterogeneous opinions and surveying the empirical evidence on the informational efficiency of financial markets.
Emilio Barucci, Claudio Fontana
Chapter 9. Uncertainty, Rationality and Heterogeneity
Abstract
This chapter presents a critical analysis of several fundamental hypotheses underlying the theory developed in the previous chapters of the book. More specifically, the attention is focused on the notions of risk and uncertainty, on the classical assumptions of expected utility theory, on the agents’ rationality and on the imperfections of financial markets. By relaxing the assumptions made so far in the book, several alternative paradigms are proposed and their implications are discussed, also on the basis of the empirical evidence reported in the literature. Some basic aspects of behavioral finance are also explored and compared to the implications of classical asset pricing theory.
Emilio Barucci, Claudio Fontana
Chapter 10. Financial Markets Microstructure
Abstract
This chapter deals with financial markets microstructure. Relaxing the assumption of perfect competition adopted in the previous chapters, this chapter explores the real functioning of financial markets and the role of different categories of market participants. In particular, the central themes are represented by the role of information under imperfect competition and market liquidity. The chapter closes with an overview of insider trading, market manipulation and of the different institutional features of real financial markets.
Emilio Barucci, Claudio Fontana
Chapter 11. Solutions of Selected Exercises

In this appendix, we provide the detailed solutions to a selection of the exercises proposed at the end of the chapters. The solutions to the exercises that are not solved in this appendix can be found in the solutions manual.

Emilio Barucci, Claudio Fontana
Backmatter
Metadaten
Titel
Financial Markets Theory
verfasst von
Emilio Barucci
Claudio Fontana
Copyright-Jahr
2017
Verlag
Springer London
Electronic ISBN
978-1-4471-7322-9
Print ISBN
978-1-4471-7321-2
DOI
https://doi.org/10.1007/978-1-4471-7322-9