Handbook of the Fundamentals of Financial Decision Making
By:"Leonard C MacLean","William T Ziemba"
Published on 2013-05-10 by World Scientific
This handbook in two parts covers key topics of the theory of financial decision making. Some of the papers discuss real applications or case studies as well. There are a number of new papers that have never been published before especially in Part II. Part I is concerned with Decision Making Under Uncertainty. This includes subsections on Arbitrage, Utility Theory, Risk Aversion and Static Portfolio Theory, and Stochastic Dominance. Part II is concerned with Dynamic Modeling that is the transition for static decision making to multiperiod decision making. The analysis starts with Risk Measures and then discusses Dynamic Portfolio Theory, Tactical Asset Allocation and Asset-Liability Management Using Utility and Goal Based Consumption-Investment Decision Models. A comprehensive set of problems both computational and review and mind expanding with many unsolved problems are in an accompanying problems book. The handbook plus the book of problems form a very strong set of materials for PhD and Masters courses both as the main or as supplementary text in finance theory, financial decision making and portfolio theory. For researchers, it is a valuable resource being an up to date treatment of topics in the classic books on these topics by Johnathan Ingersoll in 1988, and William Ziemba and Raymond Vickson in 1975 (updated 2nd edition published in 2006). Contents:Part I: Decision Making Under Uncertainty:Section A. Arbitrage and Asset Pricing:The Arbitrage Theory of Capital Asset Pricing (SA Ross)The Fundamental Theorem of Asset Pricing (W Schachermayer)Risk Neutral Pricing (W Schachermayer)Using Tucker's Theorem of the Alternative to Provide a Framework for Proving Basic Arbitrage Results (M Kallio and WT Ziemba)Section B. Utility Theory:A General Theory of Subjective Probabilities and Expected Utilities (P Fishburn)Prospect Theory: An Analysis of Decisions Under Risk (D Kahneman and A Tversky)Prospect Theory: Much Ado About Nothing? (M Levy and H Levy)The Data of Levy and Levy (2002) “Prospect Theory: Much Ado About Nothing?” Actually Support Prospect Theory (PP Wakker)Prospect Theory and Mean-Variance Analysis (M Levy and H Levy)Violations of Cumulative Prospect Theory in Mixed Gambles with Moderate Probabilities (G Baltussen, T Post and PV Vliet)Temporal von Neumann–Morgenstern and Induced Preferences (DM Kreps and EL Porteus)Substitution, Risk Aversion and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework (LG Epstein and SE Zin)Risk Aversion and Expected Utility Theory: A Calibration Theorem (M Rabin)Non-Expected Utility Theory (M Machina)Judgment Under Uncertainty: Heuristics and Biases (A Tversky and D Kahneman)Choices, Values, and Frames (D Kahneman and A Tverskya)Section C. Stochastic Dominance:The Efficiency Analysis of Choices Involving Risk (G Hanoch and H Levy)Stochastic Dominance, Efficiency Criteria, and Efficient Portfolios: The Multi-Period Case (H Levy)Section D. Risk Aversion and Static Portfolio Theory:Risk Aversion in the Small and in the Large (JW Pratt)Univariate and Multivariate Measures of Risk Aversion and Risk Premiums (Y Li and WT Ziemba)The Effect of Errors in Means, Variances, and Co-Variances on Optimal Portfolio Choice (VK Chopra and WT Ziemba)Calculation of Investment Portfolios with Risk Free Borrowing and Lending (WT Ziemba, C Parkan and R Brooks-Hill)Comparison of Alternative Utility Functions in Portfolio Selection Problems (JG Kallberg and WT Ziemba)Characterizations of Optimal Portfolios by Univariate and Multivariate Risk Aversion (Y Li and WT Ziemba)Choosing Investment Portfolios When the Returns Have Stable Distributions (WT Ziemba)Covariance Complexity and Rates of Return on Assets (LC MacLean, ME Foster and WT Ziemba)Anomalies: Risk Aversion (M Rabin and RH Thaler)Part II: From Decision Making to Measurement and Dynamic Modeling:Section E. Risk Measures:The Innovest Austrian Pension Fund Planning Model InnoALM (A Geyer and WT Ziemba)Modified Risk Measures and Acceptance Sets (RT Rockafellar and WT Ziemba)Convex Risk Measures: Basic Facts, Law Invariance and Beyond, Asymptotics for Large Portfolios (H Föllmer and T Knispel)Modeling and Optimization of Risk (P Krokhmal, M Zabarankin and S Uryasev)Section F. Dynamic Portfolio Theory and Asset Allocation:DEA-Based Firm Strengths and Market Efficiency in US and Japan (C Edirisinghe, X Zhang and S-C Shyi)The Kelly Strategy for Investing: Risk and Reward (LC MacLean and WT Ziemba)Reaching Goals by a Deadline: Digital Options and Continuous-Time Active Portfolio Management (S Browne)Beating a Moving Target: Optimal Portfolio Strategies for Outperforming a Stochastic Benchmark (S Browne)Stochastic Differential Portfolio Games (S Browne)Fractional Kelly Strategies in Continuous Time: Recent Developments (M Davis and S Lleo)Growth-Optimal Investments and Numeraire Portfolios Under Transactions Costs (W Bahsoun, IV Evstigneev and MI Taksar)A Multivariate Model of Strategic Asset Allocation (JY Campbell, YL Chan & LM Viceira)Maximizing Capital Growth with Black Swan Protection (EO Thorp and S Mizusawa) Readership: Graduate students and researchers in finance and economics, financial decision making, financial engineering and financial modeling. Keywords:Financial Decision Making;Asset Pricing;Prospect Theory;Utility Theory;Risk Aversion;Static Portfolio Theory;Stochastic Dominance;Dynamic Modeling;Dynamic Portfolio Theory;Tactical Asset Allocation;Kelly Strategy;Capital GrowthKey Features:Definitive reference work on the fundamentals of financial decision makingComplete collection of classic and new papersThorough treatment of the theory of financial decision making, static and dynamic portfolio theory, capital growth theory, utility theory and stochastic dominanceReviews: “These two parts contain a superb collection of papers covering the fundamental topics of asset pricing theory. Organized from the basic theories to complex optimal dynamic trading strategies, these readings are a complete one-stop and essential set of references for any serious scholar or user of these models.” Robert Jarrow Ronald P & Susan E Lynch Professor of Investment Management, Professor of Finance Samuel Curtis Johnson Graduate School of Management, Cornell University “This is not the usual collection of important articles published in finance, it is a definite collection that nobody involved in financial-decision making, in particular portfolio management, should be without! First, it is comprehensive in that it deals with all aspects: model building, criterion selection and uncertainty description, but what makes it particularly readable are the easy to follow introductions to each one of the chapters that tie the articles together not only providing an outline of what is to follow but also highlighting the main concepts that will be developed in the follow up sections, either the leading, relevant articles or even some sections that have been specifically written for this handbook.” Roger J-B Wets Professor of Mathematics University of California, Davis “MacLean and Ziemba have assembled the essential reference work on financial decision making. The contents are tastefully and expertly selected, spanning the field comprehensively from axiomatic foundations to illustrative and useful applications.” Darrell Duffie Dean Witter Distinguished Professor of Finance Stanford University “This handbook is a good compendium of some of the classic papers on decision making under uncertainty. It would be a useful addition to the library of any financial economist.” Marti G Subrahmanyam Charles E Merrill Professor of Finance and Economics New York University
This Book was ranked 32 by Google Books for keyword Topics in Finance 2.
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