Financial Economics

A comprehensive reference for financial economics, balancing theoretical explanations, empirical evidence, and the practical relevance of knowledge in the field.
 

This volume offers a comprehensive, integrated treatment of financial economics, tracking the major milestones in the field and providing methodological tools. Doing so, it balances theoretical explanations, empirical evidence, and practical relevance. It illustrates nearly a century of theoretical advances with a vast array of models, showing how real phenomena (and, at times, market practice) have helped economists reformulate existing theories. Throughout, the book offers examples and solved problems that help readers understand the main lessons conveyed by the models analyzed. The book provides a unique and authoritative reference for the field of financial economics.
 
Part I offers the foundations of the field, introducing asset evaluation, information problems in asset markets and corporate finance, and methods of statistical inference. Part II explains the main empirical facts and the challenges these pose for financial economists, which include excess price volatility, market liquidity, market dysfunctionalities, and the countercyclical behavior of market volatility. Part III covers the main instruments that protect institutions against the volatilities and uncertainties of capital markets described in part II. Doing so, it relies on models that have become the market standard, and incorporates practices that emerged from the 2007–2008 financial crisis. 
 Introduction 1
I Foundations 15
1 The Classic Capital Asset Pricing Model 17
2 Arbitrage, Equilibrium, and Pricing 69
3 Infinite Horizon Economics 107
4 Continuous Time Models 157
5 Information, Security Design, and Financial Contracting 261
6 Taking Models to Data 313
II Empirical Lessons and Market Inefficiencies 343
7 Neoclassical Kernels and Puzzles 345
8 Aggregate Fluctuations in Equity Markets 371
9 Macrofinance 441
10 Information and Other Market Frictions 563
III Asset Pricing and Reality 651
11 Options and Volatility 653
12 Engineering of Fixed Income Securities 759
13 Interest Rates 857
14 Risky Debt and Credit Derivatives 973
Index 1095“Antonio Mele has written an extraordinarily ambitious synthesis of financial economics. Within a single framework, the breadth of coverage is unparalleled: from financial econometrics to information economics, from continuous time finance to macrofinance, from aggregate stock markets to credit derivatives. This will be an invaluable reference for academic researchers, quantitative investment practitioners, and students of finance alike.”
—John Y. Campbell, Morton L. and Carole S. Olshan Professor of Economics, Harvard University  

“This book is a treatise of financial economics. It not only provides an integrated and broad perspective but also a valuable map that allows students and researchers to navigate the literature on asset pricing from its foundational beginnings to recent cutting-edge developments.”
—Markus Brunnermeier, Edwards S. Sanford Professor of Economics, Princeton UniversityAntonio Mele is Professor of Finance at the Università della Svizzera Italiana and Senior Chair of the Swiss Finance Institute and a Research Fellow at the Centre for Economic Policy Research in London.