Download e-book for iPad: Microfoundations of Financial Economics: An Introduction to by Yvan Lengwiler

By Yvan Lengwiler

ISBN-10: 0691113157

ISBN-13: 9780691113159

ISBN-10: 0691126313

ISBN-13: 9780691126319

ISBN-10: 1400829577

ISBN-13: 9781400829576

This textbook takes the reader from the extent of microeconomics rules via to trendy asset pricing concept. Yvan Lengwiler elegantly hyperlinks jointly concerns that experience some time past been the territory of normal fiscal theorists at the one hand, and fiscal economists at the different. In a chain of rigorously defined steps, the reader learns how the 1st welfare theorem is utilized in asset pricing thought. The ebook then strikes directly to discover Radner economies and von Neumann-Morgenstern determination conception, and this part culminates in Wilson's mutuality precept and the consumption-based CAPM. this can be then positioned right into a dynamic environment, and time period constitution versions are brought. The empirical shortcomings of the normal asset pricing types are commonly mentioned, as is learn from the final 20 years aimed toward bringing conception according to truth. The reader is cited to this point at the most modern components of shock, comparable to behavior formation, the results of heterogeneity, demographic results, altering tax regimes, industry frictions, and the results of prospect idea for asset pricing. geared toward masters or Ph.D. scholars focusing on monetary economics, the booklet is usually 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 historical past in economics and arithmetic. It contains difficulties (with solutions), and an accompanying web site offers aiding fabric for academics.

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Additional info for Microfoundations of Financial Economics: An Introduction to General Equilibrium Asset Pricing

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If pc = 0 the agent can increase utility by demanding ever more of this commodity (by the monotonicity assumption). So his objective function is monotonically increasing in one of its arguments and, since the price is zero demand, is not constrained by the budget. But that means that there is no choice that maximizes utility subject to the budget. The situation is even more extreme if a price is negative, pc < 0. The agent could then increase his purchasing power by “buying” more of this commodity c, and spending the amount of money he gets from this purchase (the price is negative) on other goods 11 We use and < to denote inequalities of numbers.

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 . 17) i=1 We call this the competitive SWF. The marginal increase of the objective function that can be achieved if the constraint is marginally eased is called the shadow price.

PSM Box 2 . 7 Contingent claim economy An agent is defined by his utility function, ui : R(S+1)M → R, and his endowment, ω(i) ∈ R(S+1)M . Thus, the pair (ui , ω(i)) characterizes an agent. A contingent claim economy is simply a collection of all agents, {(ui , ω(i)) : i = 1, . . , I }. For short, we may simply write (u, ω). 3, the decision problem of an agent in a contingent claim economy is to choose a consumption bundle today (x 0 (i)) and a state-contingent consumption bundle tomorrow (x 1 (i), .

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Microfoundations of Financial Economics: An Introduction to General Equilibrium Asset Pricing by Yvan Lengwiler


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