Financial Economics: A Comprehensive View
FORTHCOMING, MIT PRESS
(approx. 1000 pages)
Download Contents and Introduction — Last update: December 28th, 2017
I am available to provide readers with sample chapters upon request
This book originates from notes I wrote in support of graduate and advanced undergraduate lectures in financial economics, macroeconomic dynamics, financial econometrics and financial engineering. It contains three parts, which I describe very broadly below. The Introduction contains a great deal of details and motivation regarding this work. I would highly recommend the reader to refer to this Introduction for a much better introduction to these lectures than the streamlined description below.
“Part I: Foundations” provides primordial tools of analysis and the historical context underlying the analysis in more advanced parts of the book. It deals with such disparate topics as classical portfolio selection, option pricing, dynamic consumption- and production- based asset pricing, in both discrete and continuous-time, the intricacies underlying incomplete markets and other market imperfections, theories of financial contracting, theories of debt, and, finally, some standard but also relatively more modern methods of statistical inference.
“Part II: Empirical lessons and market inefficiencies” is about explaining the main empirical facts and the challenges these facts pose to financial economists: from excess price volatility and countercyclical stock market volatility, to cross-sectional puzzles such as the value premium. This Part reviews models in which agents face idiosyncratic risk, Knightian uncertainty, have heterogenous beliefs and learn about their ever-changing environment, face financial constraints, invest in assets subject to bubbles, or generate feedback effects (from capital markets to business cycle developments). This Part also addresses core questions regarding market inefficiencies, limits to arbitrage, asymmetric information, coordination failures, financial crises, or the organization of markets.
“Part III: Asset pricing and reality” aims just to this: to rely on the lessons drawn from Part II (through the main analytical tools in Part I) and cope with the main challenges posed by actual capital markets, arising from option pricing and trading, interest rate modeling, or credit risk and the associated derivatives. In a sense, Part II is about the big puzzles we face in fundamental research, while Part III is about how to live within our current and certainly unsatisfactory paradigms, so as to cope with demand for intellectual expertise.