Review of Financial Studies Vol. 1 No. 3 1988
Security Markets: Stochastic Models
Abstract
Most modern financial research can be characterized as theoretical or empirical, or a mix of the two. Theoretical finance can be divided in the way that theoretical economics is. Neoclassical research stems from the neoclassical economics of perfectly competitive markets that have no imperfections or frictions, such, as taxes, transaction costs, externalities, or information asymmetries. By definition, imperfect markets research includes all other topics, such as the study of taxes, institutions, and topics stemming from information economics. Darrell Duffie's new book is an introduction to neoclassical finance that emphasizes topics in the intersection of theoretical finance and the mathematical economics of general equilibrium. The book is designed to take the student from first principles to the frontiers of finance-oriented general equilibrium theory. The book contains a rigorous introduction to the necessary topics in probability and stochastic control and is a good source for that material. It also contains a good summary of general equilibrium theory, including the required background mathematics. Each theorem from the general equilibrium literature is presented in a form that is general enough to be applicable to continuous-time models in finance but is as simple as possible given that level of generality. Other variations are mentioned in the literature reviews at the end of each section.
- DOI
- 10.1093/rfs/1.3.329
- Volume
- 1
- Issue
- 3
- Pages
- 329-330
- Language
- en
- Sources
- openalex crossref