Customer Reviews

Dynamic Asset Pricing Theory, Third Edition.

5 star:		(4)
4 star:		(1)
3 star:		(0)
2 star:		(1)
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This book provides the most elegant and coherent synthesis of finance theory, in a complete markets and frictionless settings.

For the reader interested in the theoretical foundations of modern financial models, this book has three main advantages over many of its competitors:

- It clearly shows the link between modern finance theory and the 40-year old Arrow-Debreu model. As this book will make clear, financial assets can be viewed as "bundles" of Arrow-Debreu contingent goods, and pricing kernels are simply extensions of Arrow-Debreu contingent state prices.

- It bridges the gap between arbitrage models on one hand, and models based on consumption, optimization/dynamic programming and general equilibrium on the other hand. Absence of arbitrage guarantees the existence of a stochastic discount factor, or pricing kernel. Optimality implies that the stochastic discount factor must be equal to the investors' intertemporal marginal rate of substitution.

- It provides a unified treatment of discrete-time and continuous-time models. Many finance textbooks focus on the mathematic tools and emphasize the difference between continuous-time and discrete-time tools--usually at the expense of the economics underlying both types of models. In contrast Duffie's book emphasizes the conceptual unity between continuous-time and discrete-time asset pricing.

This book was written more for students and academics than for pratictioners. It is not a reference or a recipe book for traders and programmers. Several chapters are devoted to general-equilibrium models that pratictioners are not likely to find useful. However, the essentials of derivative asset pricing and the term structure are also covered. The latest edition even includes a chapter on corporate finance.

Finally, this book is pretty much self-contained. All the graduate-level math results used in the proofs are presented either in the main body of the book, or in appendices.

First of all, this book is for people with advanced mathematical preparation. Courses in functional analysis, measure theory, stochastic calculus and vector space optimization are in my opinion required for a deep understanding of the material in the book. Fortunately, the appendices are very good and provide many things that can help someone to follow the book.
In the first four chapters the writer develops the discrete-time theory,in order to provide a better understanding of the underlying ideas which remain the same in the next chapters which deal with the continuous-time setting.
Although the book needs a lot of effort from the reader, it is unique in that can help you see beyond the mathematics. In other words it USES the mathematics and it isn't just a layout of theorems and proofs.
Of course it can't be compared with books like Hull as it isn't accessible to everyone. But someone with the mathematical preparation , who has read Hull , should buy this book and he will never regret it.

The mathematics of finance is not trivial, but neither is it really all that difficult; nevertheless, Duffie works to make you think that it is.

I maintain a scale of good versus bad mathematics writing in my head, against which I calibrate books I read. This scale stretches from, at one end, the faculty of Moscow University, in particular Israel Gelfand, Vladimir Arnold and Andre Kolmogorov, all of whom manage to explain to me hard things so that they seem easy, to, at the other, Darrell Duffie.

I am taking a phd level course which uses this book. For math guys, SDE and MG theory covered in this book are fine, but it is still somekind of tricky to fill in some details of proof. As author said, the latter chapters are just repeating the first two chapters in a fancy math way. It is better to understand the first two chapters very well and then go further. For optimal portfolio and consumption part, I prefer Merton's notes and his CTF. Whatever, this book is great and very neat for integrating the whole theory.

the book is great but the copy I got is not new although the seller claims it to be brand-new. Actually copy I got is not-for-sale test sample. Feel unhappy about this, other than that, I like the book.

This book, whilst being very impressive i didn't really find helpful as a learning tool. A good knowledge of the subject is required otherwise it is almost impossible to follow.

I'm studying a masters in finance, and would say it goes well beyond what we need to know for such a course. Maybe maths & finance students would cover things in this.

I am amazed that people actually use such a comllicated book in practice!!