Since then, with the perspective of major theoretical strides in the field, the book has more than fulfilled its original expectations. The realization that it remains today a compendium of classic articles and a must-read for any serious student in theoretical financial economics, has prompted the publication of a new edition.

This second edition presents a summary statement of significant research in theoretical financial economics for both the specialist and non-specialist financial economist. It also provides material for PhD-level courses covering valuation theory, and elective reading for advanced Master�s and undergraduate courses.

In addition to reproducing the original contributions, this edition includes the seminal paper by Edward C Prescott and Rajnish Mehra, �Recursive Competitive Equilibrium: The Case of Homogeneous Households,� originally published in Econometrica in 1980.

Contents:

• Theory of Valuation: Overview and Recent Developments (G M Constantinides)
• The Valuation of Uncertain Income Streams and the Pricing of Options (M Rubinstein)
• An Intertemporal Asset Pricing Model with Stochastic Consumption and Investment Opportunities (D T Breeden)
• Implementing Arrow-Debreu Equilibria by Continuous Trading of Few Long-Lived Securities (D Duffie & C-F Huang)
• A Theory of the Term Structure of Interest Rates (J C Cox et al.)
• Optimal Bond Trading with Personal Taxes (G M Constantinides & J E Ingersoll, Jr)
• Capital Market Equilibrium with Transaction Costs (G M Constantinides)
• Theory of Rational Option Pricing (R C Merton)
• A Simple Approach to Arbitrage Pricing Theory (G Huberman)
• Mutual Fund Separation in Financial Theory ? The Separating Distributions (S A Ross)
• Recursive Competitive Equilibrium: The Case of Homogeneous Households (E C Prescott & R Mehra)

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