Principles of Financial Economics

This book introduces graduate students in economics to the subfield of financial economics. It stresses the link between financial economics and equilibrium theory, devoting less attention to purely financial topics such as valuation of derivatives. Since students often find this link hard to grasp, the treatment aims to make the connection explicit and clear in each stage of the exposition. Emphasis is placed on detailed study of two-date models, because almost all of the key ideas in financial economics can be developed in the two-date setting. The analysis is intended to be comparable in rigor to the best work in microeconomics; at the same time, the authors provide enough discussion and examples to make the ideas readily understandable.