Foundations for Financial Economics

Rating:
Summary: Sentimental value
Review: I rate this book with 5 stars for sheer sentimental value: Chi-fu Huang is/was one of the principals of Long Term Capital Management and one of its most senior traders (cf Nicholas Dunbar's book "Inventing Money"). Bob Litzenberger is head of Risk Management at Goldman Sachs, and was head of the team that was put in charge of liquidating LTCM's highly illiquid positions, after it collapsed, which must have been a very delicate task that had to be carried out in an orderly way -- something similar to clearing up a mine field (cf Dunbar's book again, and Risk magazine, page 112, August 1999). The way their careers have diverged since they co-authored their book is something to think about.

Rating:
Summary: Useless
Review: I totally agree with the previous reviewer, the book is not organized well, notations are horrible and contents are of second-level importance. We're in 2000 and it is still in use in our school, 60's technology static models. Naive portfolio mathematics and stupid martingale treatment. Today, the emphasis should be on dynamic models and martingales. This book's contents are more of historic value than financial economics of today. Duffie is good, but it is more advanced than this so it is not directly comparable. Waiting for a good, modern, intermediate level treatment of financial economics...

Rating:
Summary: outdated, but still good for static models
Review: This book and Ingersoll's Theory of Financial Decision Making were the choice of our instructor for the first part of graduate sequence in Financial Economics at Yale. It covers in very decent way main results in the subject, but it has no discussion of continuous time models, so it is kind of outdated and incomplete. But it gives a very good account of static models and such ideas as Stochastic Dominance, Mean-Variance analysis, Mutual Fund separation. Its presentation of mean-variance analysis is very detailed and is the best I've seen.