From the author - The final chapter is based on the premise that most individual investors are best served through a division of labor, with investors assisted by investment professionals serving as advisors or portfolio managers. We review the demographic factors leading to an increased need for individuals to make ... click here for more details.

This introductory chapter accomplishes three things. First, the chapter discusses the differences between the mean/variance framework that underlies much of quantitative finance and the state/preference framework developed by Arrow, and why the state/preference approach is used in this book. Second, the chapter introduces the APSIM program that is ... click here for more details.

From the author - Chapter 5 explores the characteristics of equilibrium and optimal portfolio choice when investors have diverse economic positions outside the financial markets or differ in their preferences for consumption in different possible states of the world. As in earlier chapters, we assume investors agree on the probabilities ... click here for more details.

From the author - Chapter 6 confronts situations in which people disagree about the likelihood of different future outcomes. Active and passive approaches to investment management are discussed. The arguments for index funds are reviewed, along with one of the earliest published examples of a case in which the average ... click here for more details.

From the author - Chapter 3 deals with investors’ preferences. We cover alternative ways in which an individual may determine the amount of a security to be purchased or sold, given its prices. A key ingredient is the concept of marginal utility. There are direct relationships between investors’ marginal utilities ... click here for more details.

From the author - Chapter 4 analyzes the characteristics of equilibrium in a world in which investors agree on the probabilities of future states of the world, do not have sources of consumption outside the financial markets, and do not favor a given amount of consumption in one future state ... click here for more details.

From the author - Chapter 7 begins with a discussion of the type of investment product that offers “downside protection” and “upside potential.” Such a “protected investment product” is a derivative security because its return is based on the performance of a specified underlying asset or index. We show that ... click here for more details.