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24

 

Princeton University Press (Visit publisher website)

2001

English

 

 

 

Advanced

 

 

Investment management, quantitative analysis, portfolio theory, stochastic processes and stochastic calculus, security spot market equilibrium, Arrow-Debreu equilibrium, first welfare theorem, martingale generator, dynamic spanning condition, real security prices, smooth-additive utility functions, consumption-based Capital Asset Pricing Model (CCAPM), Cox-Ingersoll-Ross term structure, incomplete markets

 

Excerpt from book - This chapter reviews security market equilibrium in a continuous-time setting and derives several implications for security prices and expected returns. These include Breeden’s consumption-based capital asset pricing model (in both complete- and incomplete-market settings) as well as the Cox-Ingersoll-Ross model of the term structure.

 

A The Primitives
B Security-Spot Market Equilibrium
C Arrow-Debreu Equilibrium
D Implementing Arrow-Debreu Equilibrium
E Real Security Prices
F Optimality with Additive Utility
G Equilibrium with Additive Utility
H The Consumption-Based CAPM
I The CIR Term Structure
J The CCAPM in Incomplete Markets
Exercises
Notes

 

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This is a thoroughly updated edition of Dynamic Asset Pricing Theory, the standard text for doctoral students and researchers on the theory of asset pricing and portfolio selection in multiperiod settings under uncertainty. The asset pricing results are based on the three increasingly restrictive assumptions: absence of arbitrage, single-agent optimality, and equilibrium. These results are unified with two key concepts, state prices and martingales. Technicalities are given relatively little emphasis, so as to draw connections between these concepts and to make plain the similarities between discrete and continuous-time models.

Readers will be particularly intrigued by this latest edition`s most significant new feature: a chapter on corporate securities that offers alternative approaches to the valuation of corporate debt. Also, while much of the continuous-time portion of the theory is based on Brownian motion, this third edition introduces jumps in order to accommodate surprise events such as bond defaults. Applications include term-structure models, derivative valuation, and hedging methods. Numerical methods covered include Monte Carlo simulation and finite-difference solutions for partial differential equations. Each chapter provides extensive problem exercises and notes to the literature. A system of appendixes reviews the necessary mathematical concepts. With this new edition, Dynamic Asset Pricing Theory remains at the head of the field.