A presentation of classical asset pricing theory, this textbook is the only one to address the economic foundations of financial markets theory from a mathematically rigorous standpoint and to offer a self-contained critical discussion based on empirical results. Tools for understanding the economic analysis are provided, and mathematical models are presented in discrete time/finite state space for simplicity. Examples and exercises included.

Table of Contents

Prerequisites.- Choices under Risk.- Stochastic Dominance, Mutual Funds Separation and Portfolio Frontier.- General Equilibrium Theory and Risk Exchange.- Risk Premium: Capital Asset Pricing Model and Asset Pricing Theory.- Multiperiod Market Models.- Information and Financial Markets.- Uncertainty, Rationality, Heterogeneity.- Financial Markets Microstructure.- Corporate Finance.- Intermediation and Regulation.- References.- Index.