"The central question for positive financial economics is valuation – what is the value today of a set of future prospective cash flows? The central question for normative financial economics is the appropriate use of financial instruments in a world in which values are set wholly or partially in accord with the principles of positive financial economics."

“From a more theoretical viewpoint, one can focus on the nexus between the present and the future. A financial instrument typically represents a property right to receive future cash flows. Such cash flows will, of course, come in the future – hence the economics of time must be understood. In many cases the flows are uncertain, hence the need for an approach to the economics of uncertainty. In addition, cash flows in the far future may depend on actions taken in the near future. This gives rise to the need for a theory of the economics of options . Finally, one needs information to estimate likely future outcomes, hence the requirement for an understanding of the economics of information. I define financial economics so that it embraces all four of these important, difficult, and fascinating aspects of economics.”