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Foundations for financial economics. (English) Zbl 0677.90001

New York etc.: North-Holland. xii, 365 p. $ 35.95; Dfl. 75.00 (1988).
This is a much recommended textbook on the theoretical foundations of the economics (and mathematics) of decision making in finance. The book, indeed, concentrates on the theory; illustrative examples are given but the reader will not find practical demonstrations. The theory involves decision making under uncertainty, and associates optimization and equilibria concepts. The text starts with the abstract theory of preferences, utility, risk aversion, stochastic domminance, etc. Then the theory is specialized and applied to economic situations like portfolio analysis, contingent securities, multiperiod markets, differential information, etc. The mathematical aspects are very well displayed and discussed, classroom exercises are offered in all sections, the statistical aspects are also well presented; the economics however, is treated rather formally. The text fits very well a graduate course (actually it grew out of such a course given by the authors). The mathematical pre-requisites are only elementary calculus and some probability and statistics.
Reviewer: Z.Artstein

MSC:

91B28 Finance etc. (MSC2000)
90-01 Introductory exposition (textbooks, tutorial papers, etc.) pertaining to operations research and mathematical programming
91B06 Decision theory
91B08 Individual preferences
91B16 Utility theory
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