Financial theory seeks to explain how buyers and sellers in the financial market, the price of the contract to exchange money for time and risk profiles. Using the rules of behavior of agents, the theory generates financial models that try to predict the fair value of the securities in the financial markets. To make the model simple enough to be used in practice, theorists make simplifying assumptions about the characteristics of markets and market participants. Simplifying assumptions used in the model agent behavior is hotly debated among scholars and practitioners. The argument is that the practical use of models is useful to the extent that the simplifying assumptions on which the model is a close approximation of market reality. This note addresses the simplifying assumptions underlying the classical model of financing. "Hide
by Michael J. Schill 4 pages. Publication Date: August 28, 2008. Prod. #: UV1196-PDF-ENG
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