Book description
Financial Economics has quickly established itself as a strong and growing market. Financial Economics by Frank Fabozzi, Ted Neave, and Gaofu Zhou presents an introduction to basic financial ideas through a strong grounding in microeconomic theory. This calculus based text explores the theoretical framework for analyzing the decisions by individuals and managers of firms, and area which is common to both the financial economics and microeconomics. It also explores the interplay of these decisions on the prices of financial assets.
Table of contents
- Cover Page
- Title Page
- Copyright
- Contents
- PREFACE
- Acknowledgments
- ABOUT THE AUTHORS
- 1: INTRODUCTION
-
PART I: FINANCE IN A CERTAINTY WORLD WITH A PERFECT CAPITAL MARKET
- 2: CONSUMER FINANCIAL DECISIONS
- 3: CREATING WEALTH BY INVESTING IN PRODUCTIVE OPPORTUNITIES
- 4: HOW INVESTORS VALUE FIRMS
- 5: FIRM FINANCING DECISIONS IN A PERFECT CAPITAL MARKET
-
6: FIRM INVESTMENT DECISIONS
- 6.1 INVESTMENT DECISIONS AND OWNERS’ WEALTH MAXIMIZATION
- 6.2 CLASSIFICATION OF INVESTMENT PROJECTS
- 6.3 A PROJECT'S INCREMENTAL CASH FLOWS
- 6.4 APPLYING THE MARKET VALUE RULE TO INDEPENDENT PROJECTS
- 6.5 COMMONLY USED ASSESSMENT CRITERIA IN A CERTAIN WORLD WITH A PERFECT CAPITAL MARKET
- 6.6 INVESTMENT CRITERIA IN PRACTICE
- KEY POINTS
- QUESTIONS
- REFERENCES
- PART II: FINANCIAL SYSTEM
-
PART III: TOOLS FOR COPING WITH RISK
- 9: THE MICROECONOMIC FOUNDATION OF FINANCIAL ECONOMICS
-
10: CONTINGENT CLAIMS AND CONTINGENT STRATEGIES
- 10.1 STATES OF THE WORLD
- 10.2 CONTINGENT CLAIMS AND THEIR VALUE
- 10.3 INVESTOR'S UTILITY MAXIMIZATION IN CONTINGENT CLAIMS MARKETS
- 10.4 INCOMPLETE MARKETS FOR CONTINGENT CLAIMS
- 10.5 MODIGLIANI-MILLER REVISITED
- 10.6 FINANCIAL INSTRUMENTS AS CONTINGENT CLAIMS
- 10.7 CONTINGENT STRATEGIES
- KEY POINTS
- QUESTIONS
- REFERENCES
- 11: RISK AND RISK MANAGEMENT
- 12: ON CHOOSING RISK MEASURES
-
PART IV: SELECTION AND PRICING OF RISKY ASSETS
- 13: MEAN-VARIANCE PORTFOLIO CHOICE
-
14: CAPITAL ASSET PRICING MODEL
- 14.1 CAPM ASSUMPTIONS
- 14.2 DERIVING THE CAPITAL MARKET
- 14.3 DERIVING THE CAPM
- 14.4 CAPM IN THE ABSENCE OF A RISK-FREE ASSET
- 14.5 IMPLICATIONS OF THE CAPM
- 14.6 AN ALTERNATIVE DERIVATION
- 14.7 ESTIMATING BETA RISK
- 14.8 APPLICATION OF CAPM IN INVESTMENT MANAGEMENT
- 14.9 TESTS OF THE CAPM
- KEY POINTS
- QUESTIONS
- APPENDIX 14.1: RUBINSTEIN'S PROOF OF THE CAPM
- REFERENCES
- 15: ARBITRAGE PRICING THEORY AND FACTOR MODELS
-
16: GENERAL PRINCIPLES OF ASSET PRICING
- 16.1 ONE-PERIOD FINITE STATE ECONOMY
- 16.2 PORTFOLIOS AND MARKET COMPLETENESS
- 16.3 THE LAW OF ONE PRICE AND LINEAR PRICING
- 16.4 ARBITRAGE AND POSITIVE STATE PRICING
- 16.5 THE FUNDAMENTAL THEOREM OF ASSET PRICING
- 16.6 DISCOUNT FACTOR MODELS
- 16.7 EQUITY RISK PREMIUM PUZZLE
- KEY POINTS
- QUESTIONS
- REFERENCES
-
17: PRICING CORPORATE SECURITIES
- 17.1 PROFIT-SEEKING ELIMINATES ARBITRAGE OPPORTUNITIES
- 17.2 PRICING SECURITIES RELATIVE TO EACH OTHER
- 17.3 CALCULATING RISK-NEUTRAL PROBABILITY MEASURES
- 17.4 USING RISK-NEUTRAL PROBABILITIES FOR SECURITIES VALUATION
- 17.5 DEBT VERSUS EQUITY
- 17.6 APPLICATION: BOND VALUATION AND MARKET RISK
- KEY POINTS
- QUESTIONS
- REFERENCES
-
PART V: DERIVATIVE INSTRUMENTS
- 18: PRICING DERIVATIVES BY ARBITRAGE: LINEAR PAYOFF DERIVATIVES
-
19: PRICING DERIVATIVES BY ARBITRAGE: NONLINEAR PAYOFF DERIVATIVES
- 19.1 BASIC CONCEPTS
- 19.2 SIMPLE USES OF OPTIONS
- 19.3 PUT-CALL PARITY
- 19.4 KEY IDEA FOR VALUATION
- 19.5 SINGLE-PERIODB IN OMIAL MODEL
- 19.6 BLACK-SCHOLES FORMULA
- 19.7 BINOMIAL MODEL
- 19.8 AMERICAN OPTIONS
- 19.9 ARBITRARY PAYOFFS AND GENERAL MODELS
- Appendix 19.1 Derivation of the Black-Scholes Formula
- KEYPOINTS
- QUESTIONS
- REFERENCES
-
PART VI: CAPITAL MARKET IMPERFECTIONS AND THE LIMITS TO ARBITRAGE
-
20: CAPITAL MARKET IMPERFECTIONS AND FINANCIAL DECISION CRITERIA
- 20.1 TYPES OF CAPITAL MARKET IMPERFECTIONS
- 20.2 SOME EFFECTS OF CAPITAL MARKET IMPERFECTIONS
- 20.3 NEED FOR AN INTEGRATED APPROACH TO FINANCIAL DECISION MAKING
- 20.4 CHOOSING CRITERIA FOR FINANCIAL DECISIONS
- 20.5 MOTIVATING MANAGERS TO MEET OWNERS’ OBJECTIVES: AGENCY THEORY
- KEY POINTS
- QUESTIONS
- REFERENCES
- 21: IMPEDIMENTS TO ARBITRAGE
-
20: CAPITAL MARKET IMPERFECTIONS AND FINANCIAL DECISION CRITERIA
-
PART VII: CAPITAL STRUCTURE DECISIONS IN IMPERFECT CAPITAL MARKETS
-
22: WHEN CAPITAL STRUCTURE MATTERS
- 22.1 EFFECT OF CORPORATE TAXATION ON LEVERAGE
- 22.2 CAPITAL STRUCTURE AND FINANCIAL DISTRESS
- 22.3 FINANCIAL DISTRESS AND CAPITAL STRUCTURE
- 22.4 HETEROGENEOUS EXPECTATIONS
- 22.5 AGENCY EFFECTS
- 22.6 THEORY OF DIVIDEND PAYMENTS
- 22.7 IS THERE AN OPTIMAL CAPITAL STRUCTURE?
- 22.8 DYNAMIC MODELS
- KEY POINTS
- QUESTIONS
- REFERENCES
-
23: FINANCING DECISIONS IN PRACTICE
- 23.1 ESTIMATING THE COSTS OF DIFFERENT FUNDING SOURCES
- 23.2 TIMING THE ISSUANCE OF DEBT
- 23.3 CREDITORS, INVESTORS, AND CAPITAL STRUCTURE CHOICES
- 23.4 SIGNIFICANCE OF TECHNICAL INSOLVENCY
- 23.5 RESTRICTIVE COVENANTS AND AGENCY COSTS
- 23.6 DIVIDEND POLICY
- 23.7 REPURCHASING THE FIRM'S COMMON STOCK
- 23.8 PREEMPTIVE RIGHTS OFFERING
- 23.9 CONTINGENCY PLANNING AND CAPITAL STRUCTURE CHOICES
- KEY POINTS
- QUESTIONS
- REFERENCES
- 24: FINANCIAL CONTRACTING AND DEAL TERMS
-
22: WHEN CAPITAL STRUCTURE MATTERS
-
PART VIII: INCORPORATING RISK IN CAPITAL BUDGETING DECISIONS
-
25: CAPITAL EXPENDITURE PLANS IN A RISKY WORLD
- 25.1 A MARKET VALUE CRITERION
- 25.2 COMPARING NEW AND EXISTING EARNINGS RISKS TO OBTAIN OPTIMAL CAPITAL EXPENDITURE PLANS
- 25.3 REQUIRED RATES OF RETURN: FIRM, DIVISION, AND PROJECT
- 25.4 DEPRECIATION TAX SHIELD IN A RISKY WORLD
- 25.5 SINGLE-PERIOD VERSUS MULTI-PERIOD INVESTMENT MODELS
- KEY POINTS
- QUESTIONS
- REFERENCES
- 26: EVALUATING PROJECT RISK IN CAPITAL BUDGETING
-
25: CAPITAL EXPENDITURE PLANS IN A RISKY WORLD
- SUBJECT INDEX
- AUTHOR INDEX
- WEB–APPENDIX A: DEAL TERMS
- WEB–APPENDIX B: CORPORATE DEBT FUNDING INSTRUMENTS
- WEB–APPENDIX C: INVESTMENT BANKERS AND THE ISSUANCE OF SECURITIES
- WEB-APPENDIX D: CREDIT RISK
- WEB-APPENDIX E *: FINANCIAL STATEMENTS
- WEB-APPENDIX F *: FINANCIAL RATIO ANALYSIS
- WEB-APPENDIX G *: ESTIMATING CASH FLOWS OF CAPITAL BUDGETING PROJECTS
- WEB–APPENDIX H: MERGER AND ACQUISITION STRATEGIES
- WEB–APPENDIX I: CONGLOMERATES AS A MEANS OF OVERCOMING CAPITAL MARKET IMPERFECTIONS
- WEB–APPENDIX J: LEASE FINANCING
- WEB–APPENDIX K: TAYLOR SERIES APPROXIMATION
- WEB-APPENDIX L: SOME ELEMENTARY CONCEPTS INVOLVING PROBABILITY
- WEB–APPENDIX M: CONTINUOUS PROBABILITY DISTRIBUTIONS
- WEB–APPENDIX N: CONTINUOUS INTEREST RATES
- WEB-APPENDIX O *: FUNDAMENTALS OF MATRIX ALGEBRA
- WEB–APPENDIX P: PRINCIPAL COMPONENT ANALYSIS IN FINANCE
- SUBJECT INDEX (WEB-APPENDIX A TO P)
- AUTHOR INDEX (WEB-APPENDIX A TO P)
Product information
- Title: Financial Economics
- Author(s):
- Release date: November 2011
- Publisher(s): Wiley
- ISBN: 9780470596203
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