Synopses & Reviews
Review
“‘An Outline of Financial Economics’ provides a nice pedagogical exposition of the basic principles in financial economics, covering firm valuation and capital structure, fixed income securities and options, and portfolio theory and management. The most important concepts and results in the financial economics literature are well presented, including the Modigliani–Miller theorem in capital financing, hedging and dynamic replication in modern asset valuation principles, the Markowitz mean-variance portfolio model and the Sharpe–Lintner capital asset pricing model, and stochastic dominance. This text is well suited for science and engineering students at the undergraduate level, particularly those who would like to acquire some basic knowledge of financial economics at a higher level of quantitative reasoning than offered by standard business school texts in finance and investment.” —Professor Yue Kuen Kwok, Hong Kong University of Science and Technology
Synopsis
“An Outline of Financial Economics” presents a systematic treatment of the theory and methodology of finance and economics. The book follows an analytical and geometric methodology, explaining technical terms and mathematical operations in clear, nontechnical language, and providing intuitive explanations of the mathematical results.
Synopsis
"An Outline of Financial Economics" presents a systematic treatment of theory and methodology of finance and economics. It begins by discussing financial instruments, which form the basis of the theory of finance and are defined as legal documents recording monetary transactions. The text then goes on to analyze bonds - which are regarded as fixed income securities - in a simple framework, and to discuss the valuation of stocks and cash flows in detail.
The text follows an analytical and geometric methodology, explaining technical terms and mathematical operations in nontechnical language. It also provides intuitive explanations of the mathematical results of questions concerning important issues such as risk aversion, uncertainty, prospect theory and the theory of stochastic dominance.
The text also covers two alternative approaches to portfolio analysis - namely the mean-variance and mean-Gini approaches - and features an analysis of the Modigliani-Miller theorem, which has played a major role in the development of business finance. It discusses the capital asset pricing model and the intricacies of the methods for determining prices of different types of options, which give the right to buy or sell an asset. Conditions for non-arbitrage that do not allow advantage of price discrimination between markets are also developed.
Because of its wide coverage and analytical, articulate and authoritative presentation, "An Outline of Financial Economics" will be an indispensable book for finance researchers and undergraduate and graduate students in fields such as economics, finance, econometrics, statistics and mathematics.
About the Author
Satya R. Chakravarty is Professor of Economics at the Indian Statistical Institute in Kolkata, India.
Table of Contents
Preface; PART I: INTRODUCTION AND BASIC CONCEPTS; 1. Basic Concepts; 2. Intertemporal Decision-Making and Time Value of Money; 3. Risk and Uncertainty; PART II: FIRM VALUATION AND CAPITAL STRUCTURE; 4. Valuation of Stocks; 5. Valuation of Cash Flows and Capital Budget Allocation; 6. Financial Structure of a Firm; PART III: FIXED INCOME SECURITIES AND OPTIONS; 7. Valuation of Bonds and Interest Rates; 8. Markets for Options; 9. Arbitrage and Binomial Model; 10. Brownian Motion and Itō’s Lemma; 11. The Black–Scholes–Merton Model; 12. Exotic Options; 13. Risk-Neutral Valuation and Martingales; PART IV: PORTFOLIO MANAGEMENT THEORY; 14. Portfolio Management: The Mean-Variance Approach; 15. Stochastic Dominance; 16. Portfolio Management: The Mean-Gini Approach; Bibliography; Index