Neoclassical Finance by Stephen A. RossNeoclassical Finance by Stephen A. Ross

Neoclassical Finance

byStephen A. Ross

Hardcover | October 31, 2004

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Neoclassical Finance provides a concise and powerful account of the underlying principles of modern finance, drawing on a generation of theoretical and empirical advances in the field. Stephen Ross developed the no arbitrage principle, tying asset pricing to the simple proposition that there are no free lunches in financial markets, and jointly with John Cox he developed the related concept of risk-neutral pricing. In this book Ross makes a strong case that these concepts are the fundamental pillars of modern finance and, in particular, of market efficiency. In an efficient market prices reflect the information possessed by the market and, as a consequence, trading schemes using commonly available information to beat the market are doomed to fail.


By stark contrast, the currently popular stance offered by behavioral finance, fueled by a number of apparent anomalies in the financial markets, regards market prices as subject to the psychological whims of investors. But without any appeal to psychology, Ross shows that neoclassical theory provides a simple and rich explanation that resolves many of the anomalies on which behavioral finance has been fixated.


Based on the inaugural Princeton Lectures in Finance, sponsored by the Bendheim Center for Finance of Princeton University, this elegant book represents a major contribution to the ongoing debate on market efficiency, and serves as a useful primer on the fundamentals of finance for both scholars and practitioners.

Stephen A. Ross is the Franco Modigliani Professor of Finance and Economics at the Massachusetts Institute of Technology. Best known as the originator of arbitrage pricing theory and as the codiscoverer of risk-neutral pricing and the binomial model for pricing derivatives, he is the coauthor of the best-selling textbook series in fin...
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Title:Neoclassical FinanceFormat:HardcoverDimensions:120 pagesPublished:October 31, 2004Publisher:Princeton University PressLanguage:English

The following ISBNs are associated with this title:

ISBN - 10:0691121389

ISBN - 13:9780691121383

Reviews

Table of Contents

PREFACE ix

CHAPTER ONE: No Arbitrage: The Fundamental Theorem of Finance 1

CHAPTER TWO: Bounding the Pricing Kernel, Asset Pricing, and Complete Markets 22

CHAPTER THREE: Efficient Markets 42

CHAPTER FOUR: A Neoclassical Look at Behavioral Finance: The Closed-End Fund Puzzle 66

BIBLIOGRAPHY 95

INDEX 101

Editorial Reviews

"The battle between classical and behavioral economics is here to stay and will be a centerpiece of debate in the years to come, especially in the portfolio management arena. Stephen Ross contends that critics of neoclassical finance are all too willing to live with the proverbial $100 bill sitting unclaimed on the pavement, and underestimate the power of arbitrage. He does a marvelous job of establishing the basic foundations of neoclassical finance, and describing its tenets and results. And he does so with just the right mix of survey materials and new results."-Yacine Aït-Sahalia, Director, Bendheim Center for Finance, Princeton University