Microfoundations of Financial Economics
An Introduction to General Equilibrium Asset Pricing

This book was published by Princeton University Press in 2004. The copyright has now reverted to me and I am distributing the book for free, so that everyone who is interested to learn something they did not know before can do so without spending money.


This book can be used as an introduction to general equilibrium theory, macroeconomics, or finance — three fields that have moved closer to each other over the last two decades. The book develops the theory from the bottom up, placing special emphasis on the conditions for aggregation. In essence, it takes the reader from a microeconomics principles level (indifference curves, budget constraints, maximization) in a sequence of carefully elaborated and detailed steps to modern topics in finance (consumption CAPM, term structure of interest rates, equity premium puzzle, habits, asset pricing with heterogenous agents, demographic effects on asset prices, etc).

Here is what some people in the profession have said about this book:

“Microfoundations of Financial Economics is a wonderful book. In less than 300 pages of highly readable text, Yvan Lengwiler covers the basics of modern asset pricing theory. Students of advanced finance will want to use this book as an effective learning tool and reference. It’s going to be a permanent part of my library.” — Simon Benninga, Tel Aviv University and Editor-in-Chief, European Finance Review.

“A tour de force. Yvan Lengwiler’s book provides a valuable structure around an area that professors struggle to cover in an integrated way.” — Elroy Dimson, London Business School.


First of all, you can download the book [pdf, 1’089kB] here.

To support my own teaching, I have created PowerPoint files for some of the chapters. This may be useful for you, too. The slides use light letters on a dark background, which is suitable for using with a projector. Black and white versions are also available and are suitable for use with a conventional overhead projector. The slides can easily be amended if you have PowerPoint installed on your computer.

colorful version [zip, 2.54MB].
black and white version [zip, 2.53MB].

In addition, Professor Abhay Abhyankar (School of Management and Economics, University of Edinburgh) has prepared slides for his short Masters level course based on my book. I am very grateful to Abhay for sharing his teaching material with us. You are free to amend/alter/change these files to suit your specific purpose.

Abhay’s files [zip, 4.01MB]

I have prepared Excel files with the solutions to some of the end of chapter problems. In addition, there is also an electronic version of the experiment of Box 4-6 of the book that allows you to measure your own coefficient of relative risk aversion, and there is a file that allows you to compute Mehra-Prescott bounds as in Figure 7.1 of the book.

Excel files [zip, 1.96MB]


This section of the website contains a list to all the literature referenced in the text, ordered according to the chapters of the text, and with links to online versions of these items where available. This should help instructors collect material for a reader accompanying their course, and it helps students collect the relevant literature on their own. Not all pieces of literature are available online, though, and many require a subscription to the respective journal, to JSTOR, or to the NBER working paper series. I have linked books to the respective publisher’s website, from where most books can be ordered. Where no publisher website is available I provide a link to amazon.com.

Click here to see references with links.

known errors

Few books are free of errors. This is not one of them. I maintain a list of errors to avoid getting several people confused about the same mistake. Should you find any errors or omissions, please let me know.

errors [pdf, 69kB]