- Series: Princeton Series in Finance
- Hardcover: 472 pages
- Publisher: Princeton University Press; Third edition (November 1, 2001)
- Language: English
- ISBN-10: 069109022X
- ISBN-13: 978-0691090221
- Product Dimensions: 6.3 x 1.4 x 9.4 inches
- Shipping Weight: 1.8 pounds (View shipping rates and policies)
- Average Customer Review: 2.9 out of 5 stars See all reviews (10 customer reviews)
- Amazon Best Sellers Rank: #1,014,422 in Books (See Top 100 in Books)
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Dynamic Asset Pricing Theory, Third Edition. Third Edition
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"This is an important addition to the set of text/reference books on asset pricing theory. It will, if it has not already, become the standard text for the second Ph.D. course in security markets. Its treatment of contingent claim valuation, in particular, is unrivaled in its breadth and coherence."--Journal of Economic Literature
About the Author
J. Darrell Duffie is the James Irvin Miller Professor of Finance at the Graduate School of Business. Stanford University. He teaches and does research in the area of asset valuation, risk management, credit risk modeling, and fixed-income and equity markets. His other books include Security Markets, Stochastic Models, and Futures Markets.
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Top Customer Reviews
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.
If you are new to the subject you will find it very hard to follow. Concepts are often defined purely in math terms with intuition given very sparsely if at all. Proofs are very terse (read incomplete) because everything "is easy to show" and annoyingly often, results are simply stated with the derivation "left as an exercise" leaving me wondering why Duffie uses precious space for those pointless remarks instead of actually explaining the material.
If, on the other hand, you already know the material the book might be useful as a reference due to its tersenes. However, I don't see why someone would bother to get used to new notation when they already know the material from somewhere else.
As another reviewer already stated, math requirements are quite high: real analysis, stochastic calculus, and measure theory at least and here again I doubt that someone might find the appendices helpful if they don't know the material already from somewhere else.
Also, I agree with someone else's comment that while finance can be tough, it is definitely not as tough as Duffie makes it to be. Of course there is always a trade-off between generality and presenting concepts in an easy way but just because something can be done with complex numbers does not mean that it has to.
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.
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.
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