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Mathematics - Mathematical Economics and Finance

Mathematics - Mathematical Economics and Finance

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Mathematical Economics and Finance
Michael Harrison Patrick WaldronDecember 2, 1998
 
CONTENTS
i
Contents
List of Tables iiiList of Figures vPREFACE vii
What Is Economics? . . . . . . . . . . . . . . . . . . . . . . . . . . . viiWhat Is Mathematics? . . . . . . . . . . . . . . . . . . . . . . . . . . . viii
NOTATION ix
I MATHEMATICS 1
1 LINEAR ALGEBRA 3
1.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.2 Systems of Linear Equations and Matrices . . . . . . . . . . . . . 31.3 Matrix Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 71.4 Matrix Arithmetic . . . . . . . . . . . . . . . . . . . . . . . . . . 71.5 Vectors and Vector Spaces . . . . . . . . . . . . . . . . . . . . . 111.6 Linear Independence . . . . . . . . . . . . . . . . . . . . . . . . 121.7 Bases and Dimension . . . . . . . . . . . . . . . . . . . . . . . . 121.8 Rank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131.9 Eigenvalues and Eigenvectors . . . . . . . . . . . . . . . . . . . . 141.10 Quadratic Forms . . . . . . . . . . . . . . . . . . . . . . . . . . 151.11 Symmetric Matrices . . . . . . . . . . . . . . . . . . . . . . . . . 151.12 Denite Matrices . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2 VECTOR CALCULUS 17
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172.2 Basic Topology . . . . . . . . . . . . . . . . . . . . . . . . . . . 172.3 Vector-valued Functions and Functions of Several Variables . . . 18
Revised: December 2, 1998
 
ii
CONTENTS
2.4 Partial and Total Derivatives . . . . . . . . . . . . . . . . . . . . 202.5 The Chain Rule and Product Rule . . . . . . . . . . . . . . . . . 212.6 The Implicit Function Theorem . . . . . . . . . . . . . . . . . . . 232.7 Directional Derivatives . . . . . . . . . . . . . . . . . . . . . . . 242.8 Taylor’s Theorem: Deterministic Version . . . . . . . . . . . . . 252.9 The Fundamental Theorem of Calculus . . . . . . . . . . . . . . 26
3 CONVEXITY AND OPTIMISATION 27
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273.2 Convexity and Concavity . . . . . . . . . . . . . . . . . . . . . . 273.2.1 Denitions . . . . . . . . . . . . . . . . . . . . . . . . . 273.2.2 Properties of concave functions . . . . . . . . . . . . . . 293.2.3 Convexity and differentiability . . . . . . . . . . . . . . . 303.2.4 Variations on the convexity theme . . . . . . . . . . . . . 343.3 Unconstrained Optimisation . . . . . . . . . . . . . . . . . . . . 393.4 Equality Constrained Optimisation:The Lagrange Multiplier Theorems . . . . . . . . . . . . . . . . . 433.5 Inequality Constrained Optimisation:The Kuhn-Tucker Theorems . . . . . . . . . . . . . . . . . . . . 503.6 Duality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
II APPLICATIONS 61
4 CHOICE UNDER CERTAINTY 63
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 634.2 Denitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 634.3 Axioms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 664.4 Optimal Response Functions:Marshallian and Hicksian Demand . . . . . . . . . . . . . . . . . 694.4.1 The consumers problem . . . . . . . . . . . . . . . . . . 694.4.2 The No Arbitrage Principle . . . . . . . . . . . . . . . . . 704.4.3 Other Properties of Marshallian demand . . . . . . . . . . 714.4.4 The dual problem . . . . . . . . . . . . . . . . . . . . . . 724.4.5 Properties of Hicksian demands . . . . . . . . . . . . . . 734.5 Envelope Functions:Indirect Utility and Expenditure . . . . . . . . . . . . . . . . . . 734.6 Further Results in Demand Theory . . . . . . . . . . . . . . . . . 754.7 General Equilibrium Theory . . . . . . . . . . . . . . . . . . . . 784.7.1 Walraslaw . . . . . . . . . . . . . . . . . . . . . . . . . 784.7.2 Brouwer’s xed point theorem . . . . . . . . . . . . . . . 78
Revised: December 2, 1998

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