Presenting the basic principles and discussing them in a unified framework within elementary models, this text analyzes the allocation of risk in the context of the current literature, and emphasizes the role of information in decisions and prices. Including end–of–chapter exercises, this book provides students with a tool for understanding the theoretical analysis of decision–making under uncertainty, and its applications to the world of economics and finance.
I. Value by Arbitrage.
1. Financial instruments: an introduction.
II. Exchanging Risk.
3. Investors and their information.
4. Portfolio choice.
5. Optimal risk sharing and insurance.
6. Equilibrium on the stock exchange and risk sharing.
7. Trade and information.
8. Intertemporal valuation.
III. The Firm.
9. Corporate finance and risk.
10. Financing investments and limited liability.
"Given the explosive growth of the finance literature, even well–trained microeconomists may feel left behind. They should be grateful to Demange and Laroque for giving them such a clear and unified picture of how financial instruments allocate risk in the economy." Bernard Salanie, Columbia University