By Yvan Lengwiler

ISBN-10: 0691113157

ISBN-13: 9780691113159

This textbook takes the reader from the extent of microeconomics rules via to trendy asset pricing thought. Yvan Lengwiler elegantly hyperlinks jointly matters that experience long ago been the territory of normal financial theorists at the one hand, and monetary economists at the different. In a series of rigorously defined steps, the reader learns how the 1st welfare theorem is utilized in asset pricing concept. The e-book then strikes directly to discover Radner economies and von Neumann-Morgenstern selection conception, and this part culminates in Wilson's mutuality precept and the consumption-based CAPM. this can be then placed right into a dynamic surroundings, and time period constitution versions are brought. The empirical shortcomings of the normal asset pricing types are broadly mentioned, as is study from the final two decades aimed toward bringing thought according to fact. The reader is mentioned to this point at the most modern parts of outrage, similar to behavior formation, the results of heterogeneity, demographic results, altering tax regimes, industry frictions, and the results of prospect thought for asset pricing. aimed toward masters or Ph.D. scholars focusing on monetary economics, the publication is additionally used as a supplementary textual content for college students of macroeconomics at this complicated point and may be of curiosity to finance execs with a history in economics and arithmetic. It comprises difficulties (with solutions), and an accompanying web site offers assisting fabric for teachers.

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Extra info for Microfoundations of Financial Economics: An Introduction to General Equilibrium Asset Pricing (Princeton Series in Finance)

Example text

3. e. ∇u(x) = λp for some λ > 0. Box 2 . 3 Maximality condition In the utility maximum, the decision maker’s marginal rate of substitution between two commodities equals the relative price of these two goods. Equivalently, the price vector is collinear to the gradient of the utility function at the consumption point.

15) I (x(i) − /I ) = 0. 16) is simply the market clearing condition and therefore satisfied in equilibrium. 15) is also satisfied. 12). We know that the equilibrium allocation x satisfies this condition because it is an efficient allocation (by the welfare theorem). Thus, μ = p/I is a solution. We conclude that the equilibrium allocation maximizes a social welfare function that weights agents according to the reciprocal of their marginal utility of wealth, U (z) := max 1 I I i=1 1 λ− i ui (y(i)) I (y(i) − z) 0 .

It is, in fact, a bundle of state-contingent commodities, one for each possible state, so that the delivery of the commodity is not contingent on the state anymore. 9). 4 General equilibrium We have learned what an economic commodity is, and we have learned the classical economic model of individual choice between commodity bundles. These individual choices need to be compatible with each other. For instance, if everyone preferred to consume more leisure and work less at the going wage, a serious deficiency in production would emerge.

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Microfoundations of Financial Economics: An Introduction to General Equilibrium Asset Pricing (Princeton Series in Finance) by Yvan Lengwiler


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