Financial Markets Theory

1. Front Matter

   Pages i-xv

   PDF

2. Prerequisites

   • Emilio Barucci, Claudio Fontana

   Pages 1-14

3. Choices Under Risk

   • Emilio Barucci, Claudio Fontana

   Pages 15-54

4. Portfolio, Insurance and Saving Decisions

   • Emilio Barucci, Claudio Fontana

   Pages 55-121

5. General Equilibrium Theory and No-Arbitrage

   • Emilio Barucci, Claudio Fontana

   Pages 123-200

6. Factor Asset Pricing Models: CAPM and APT

   • Emilio Barucci, Claudio Fontana

   Pages 201-253

7. Multi-Period Models: Portfolio Choice, Equilibrium and No-Arbitrage

   • Emilio Barucci, Claudio Fontana

   Pages 255-345

8. Multi-Period Models: Empirical Tests

   • Emilio Barucci, Claudio Fontana

   Pages 347-395

9. Information and Financial Markets

   • Emilio Barucci, Claudio Fontana

   Pages 397-477

10. Uncertainty, Rationality and Heterogeneity

    • Emilio Barucci, Claudio Fontana

    Pages 479-581

11. Financial Markets Microstructure

    • Emilio Barucci, Claudio Fontana

    Pages 583-659

12. Solutions of Selected Exercises

    • Emilio Barucci, Claudio Fontana

    Pages 661-763

13. Back Matter

    Pages 765-836

    PDF

This work, now in a thoroughly revised second edition, presents the economic foundations of financial markets theory from a mathematically rigorous standpoint and offers a self-contained critical discussion based on empirical results. It is the only textbook on the subject to include more than two hundred exercises, with detailed solutions to selected exercises.

Financial Markets Theory covers classical asset pricing theory in great detail, including utility theory, equilibrium theory, portfolio selection, mean-variance portfolio theory, CAPM, CCAPM, APT, and the Modigliani-Miller theorem. Starting from an analysis of the empirical evidence on the theory, the authors provide a discussion of the relevant literature, pointing out the main advances in classical asset pricing theory and the new approaches designed to address asset pricing puzzles and open problems (e.g., behavioral finance). Later chapters in the book contain more advanced material, including on the role of information in financial markets, non-classical preferences, noise traders and market microstructure.


This textbook is aimed at graduate students in mathematical finance and financial economics, but also serves as a useful reference for practitioners working in insurance, banking, investment funds and financial consultancy. Introducing necessary tools from microeconomic theory, this book is highly accessible and completely self-contained.



Advance praise for the second edition:


"Financial Markets Theory is comprehensive, rigorous, and yet highly accessible. With their second edition, Barucci and Fontana have set an even higher standard!"
Darrell Duffie, Dean Witter Distinguished Professor of Finance, Graduate School of Business, Stanford University




"This comprehensive book is a great self-contained source for studying most major theoretical aspects of financial economics. What makes the book particularly useful is that it provides a lot of intuition, detailed discussions of empirical implications, a very thorough survey of the related literature, and many completely solved exercises. The second edition covers more ground and provides many more proofs, and it will be a handy addition to the library of every student or researcher in the field."
Jaksa Cvitanic, Richard N. Merkin Professor of Mathematical Finance, Caltech




"The second edition of Financial Markets Theory by Barucci and Fontana is a superb achievement that knits together all aspects of modern finance theory, including financial markets microstructure, in a consistent and self-contained framework. Many exercises, together with their detailed solutions, make this book indispensable for serious students in finance."

Michel Crouhy, Head of Research and Development, NATIXIS

• asset pricing
• portfolio selection
• market microstructure
• market efficiency
• market equilibrium
• risk factors
• absence of arbitrage
• capital asset pricing model
• information in financial markets
• equity premium puzzle
• MSC (2010): 91B06, 91B08, 91B16, 91B24, 91B25, 91B30, 91B50
• quantitative finance

“The book concerns the most important and discussed issues of the modern financial markets theory. It provides a detailed and comprehensive review of theories, models, puzzles and open problems discussed in the literature concerning quantitative finance. … the book presents also a broad survey of empirical literature, including the most recent findings. The list of references contains more than one and half thousand positions.” (Paweł Kliber, zbMATH 1390.91001, 2018)

• Dipartimento di Matematica, Politecnico di Milano, Milano, Italy

  Emilio Barucci

• Laboratoire de Probabilités et Modèles Aléatoires, Université Paris Diderot (Paris 7), Paris, France

  Claudio Fontana

Emilio Barucci is full professor of financial mathematics at the Politecnico di Milano, Italy. He holds a Laurea degree from the University of Florence, Italy. His research interests include financial markets, portfolio optimization, and banking. He has extensive experience in working as an independent director in the financial sector.



Claudio Fontana is assistant professor at Paris Diderot University (Paris VII), France. He holds a Master of Advanced Studies in Finance from the ETH Zurich and the University of Zurich, Switzerland, and a PhD in Mathematical Sciences from the University of Padua, Italy. His research focuses on mathematical finance as well as the applications of stochastic processes.

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