Intermediate Financial Theory

3rd Edition

Authors: Jean-Pierre Danthine John Donaldson
Hardcover ISBN: 9780123865496
eBook ISBN: 9780123868718
Imprint: Academic Press
Published Date: 25th September 2014
Page Count: 580
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Targeting readers with backgrounds in economics, Intermediate Financial Theory, Third Edition includes new material on the asset pricing implications of behavioral finance perspectives, recent developments in portfolio choice, derivatives-risk neutral pricing research, and implications of the 2008 financial crisis. Each chapter concludes with questions, and for the first time a freely accessible website presents complementary and supplementary material for every chapter. Known for its rigor and intuition, Intermediate Financial Theory is perfect for those who need basic training in financial theory and those looking for a user-friendly introduction to advanced theory.

Key Features

  • Completely updated edition of classic textbook that fills a gap between MBA- and PhD-level texts
  • Focuses on clear explanations of key concepts and requires limited mathematical prerequisites
  • Online solutions manual available
  • Updates include new structure emphasizing the distinction between the equilibrium and the arbitrage perspectives on valuation and pricing, and a new chapter on asset management for the long-term investor


Advanced undergraduates and graduate students worldwide working on financial economics and the theory of finance.

Table of Contents

  • Preface
  • Epigraph
  • Dedication
  • Part I: Introduction

    • Chapter 1. On the Role of Financial Markets and Institutions

      • 1.1 Finance: The Time Dimension
      • 1.2 Desynchronization: The Risk Dimension
      • 1.3 The Screening and Monitoring Functions of the Financial System
      • 1.4 The Financial System and Economic Growth
      • 1.5 Financial Markets and Social Welfare
      • 1.6 Financial Intermediation and the Business Cycle
      • 1.7 Financial Crises
      • 1.8 Conclusion
      • References
      • Complementary Readings
      • Appendix: Introduction to General Equilibrium Theory
    • Chapter 2. The Challenges of Asset Pricing: A Road Map

      • 2.1 The Main Question of Financial Theory
      • 2.2 Discounting Risky Cash Flows: Various Lines of Attack
      • 2.3 Two Main Perspectives: Equilibrium versus Arbitrage
      • 2.4 Decomposing Risk Premia
      • 2.5 Models and Stylized Facts
      • 2.6 Asset Pricing Is Not All of Finance!
      • 2.7 Banks
      • 2.8 Conclusions
      • References
  • Part II: The Demand for Financial Assets

    • Chapter 3. Making Choices in Risky Situations

      • 3.1 Introduction
      • 3.2 Choosing Among Risky Prospects: Preliminaries
      • 3.3 A Prerequisite: Choice Theory Under Certainty
      • 3.4 Choice Theory Under Uncertainty: An Introduction
      • 3.5 The Expected Utility Theorem
      • 3.6 How Restrictive Is Expected Utility Theory? The Allais Paradox
      • 3.7 Behavioral Finance
      • 3.8 Conclusions
      • References
    • Chapter 4. Measuring Risk and Risk Aversion

      • 4.1 Introduction
      • 4.2 Measuring Risk Aversion
      • 4.3 Interpreting the Measures of Risk Aversion
      • 4.4 Risk Premium and Certainty Equivalence
      • 4.5 Assessing the Degree of Relative Risk Aversion
      • 4.6 The Concept of Stochastic Dominance
      • 4.7 Mean Prese


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About the Author

Jean-Pierre Danthine

Jean-Pierre Danthine is professor of economics and finance at the University of Lausanne Switzerland), director of the International Center for Financial Asset Management and Engineering Lausanne & Geneva) and CEPR Research Fellow. The holder of a Ph.D. in economics from Carnegie-Mellon University and a M.S. in Economics from the University of Louvain, Professor DanthineI previously taught at at Columbia University and held visiting appointments at CUNY Graduate Center, University of Southern California (Los Angeles), Université d'Aix-Marseille, Université Laval (Québec), as well as Universities of Toulon and Dijon. He is an Associate Editor of Macroeconomic Dynamics and Finance Research Letters; Chairman of the Scientific Council of the TCIP (Training Center for Investment Professionals); member of the Council of the European Economic Association, of the Scientific Councils of CEPREMAP (Paris), CREST (Paris), CREI (U. Pompeu Fabra, Barcelona) as well as the Fonds national de la recherche scientifique (Economics Commission - Belgium). He was also a member of the Executive Committee of the ICMB (Geneva). He was formerly Vice-Rector of the University of Lausanne, chairman of its Departement d'Econométrie et d'Economie Politique (DEEP) and director of its Institute for Banking and Financial Management, member of the Executive Committee of CEPR (Center for Economic Policy research - London), of the CEPS Macroeconomic Policy Group (Brussels), of the Scientific Council of the European Science Foundation Network in Financial Markets. He was also an Associate Editor of the European Economic Review, of the Journal of Empirical Finance and of the Revue Finance. His publications have appeared in Econometrica, the Journal of Political Economy, the Review of Economic Studies, the Journal of Finance, the Journal of Economic Theory, the Journal of Public Economics, the European Economic Review, and many other journals.

Affiliations and Expertise

Vice-Chairman of the Governing Board at the Swiss National Bank in Bern, Switzerland

John Donaldson

Affiliations and Expertise

Mario J. Gabelli Professor of Finance at Columbia University Business School, New York, NY, USA


"This unique textbook presents classic models and new results in finance, skillfully couched within the more general framework of economic decision-making under uncertainty. Throughout, Danthine and Donaldson carefully balance the need for both intuition and technical detail." --Peter Ireland, Boston College