Theory of Asset Pricing / Edition 1

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Theory of Asset Pricing unifies the central tenets and techniques of asset valuation into a single, comprehensive resource that is ideal for the first PhD course in asset pricing.

Single-Period Portfolio Choice and Asset Pricing: Expected Utility and Risk Aversion; Mean-Variance Analysis; CAPM, Arbitrage, and Linear Factor Models; Consumption-Savings and State Pricing; Multiperiod Consumption, Portfolio Choice, and Asset Pricing: A Multiperiod Discrete Time Model of Consupmtion; Multiperiod Market Equilibrium; Contingent Claims Pricing: Basics of Derivative Pricing; Essentials of Diffusion Processes and Itô’s Lemma; Dynamic Hedging and PDE Valuation; Arbitrage, Martingales, Pricing Kernels; Mixing Diffusion and Jump Processes; Asset Pricing in Continuous Time: Continuous-Time Consumption and Portfolio Choice; Equilibrium Asset Returns; Time-Inseparable Utility; Additional Topics in Asset Pricing: Behavioral Finance and Asset Pricing; Asset Pricing with Differential Information; Models of the Term Structure of Interest Rates; Models of Default Risk.

MESSAGE: For all readers interested in asset valuation.

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Product Details

  • ISBN-13: 9780321127204
  • Publisher: Prentice Hall
  • Publication date: 2/14/2007
  • Series: Pearson Custom Business Resources Series
  • Edition description: New Edition
  • Edition number: 1
  • Pages: 400
  • Product dimensions: 7.50 (w) x 9.00 (h) x 1.10 (d)

Meet the Author

George G. Pennacchi is a professor of finance and a co-director of the Office for Banking Research at the University of Illinois at Urbana-Champaign. He is also a Research Associate at the Federal Reserve Bank of Cleveland and the Program Coordinator for Deposit Insurance at the Federal Deposit Insurance Corporation’s Center for Financial Research. His research focuses on financial intermediaries and the valuation of fixed-income securities and government guarantees.

Currently, he is an editor of the Journal of Financial Intermediation and an associate editor of the Journal of Banking and Finance, the Journal of Financial and Quantitative Analysis, the Journal of Financial Services Research, and the Journal of Money, Credit and Banking. Previously, he was an associate editor for the Journal of Finance, the Review of Financial Studies, and Management Science, and a co-editor of Advances in Futures and Options Research.

His consulting experience includes work for the U.S. Office of Management and Budget, the World Bank, and the International Monetary Fund. He has been a visiting professor at Università Bocconi in Milan, Italy, and was a member of the finance faculty at the Wharton School of the University of Pennsylvania. Mr. Pennacchi received a Sc.B. degree in applied mathematics from Brown University in 1977 and a Ph.D. in economics from the Massachusetts Institute of Technology in 1984.

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Table of Contents


Chapter 1 Expected Utility and Risk Aversion
1.1 Preferences When Returns Are Uncertain
1.2 Risk Aversion and Risk Premia
1.3 Risk Aversion and Portfolio Choice

Chapter 2 Mean-Variance Analysis
2.1 Assumptions on Preferences and Asset Returns
2.2 Investor Indifference Relations
2.3 The Efficient Frontier
2.4 The Efficient Frontier with a Riskless Asset
2.5 An Application to Cross-Hedging

Chapter 3 CAPM, Arbitrage, and Linear Factor Models
3.1 The Capital Asset Pricing Model
3.2 Arbitrage
3.3 Linear Factor Models

Chapter 4 Consumption-Savings Decisions and State Pricing
4.1 Consumption and Portfolio Choices
4.2 An Asset Pricing Interpretation
4.3 Market Completeness, Arbitrage, and State Pricing


Chapter 5 A Multiperiod Discrete Time Model of Consumption
and Portfolio Choice
5.1 Assumptions and Notation of the Model
5.2 Solving the Multiperiod Model
5.3 Example Using Log Utility

Chapter 6 Multiperiod Market Equilibrium
6.1 Asset Pricing in the Multiperiod Model
6.2 The Lucas Model of Asset Pricing
6.3 Rational Asset Price Bubbles


Chapter 7 Basics of Derivative Pricing
7.1 Forward and Option Contracts
7.2 Binomial Option
7.3 Binomial Model Applications

Chapter 8 Essentials of Diffusion Processes and Itô’s Lemma
8.1 Pure Brownian Motion
8.2 Diffusion Processes
8.3 Functions of Continuous-Time Processes and Itô’s Lemma

Chapter 9 Dynamic Hedging and PDE Valuation
9.1 Black-Scholes Option Pricing
9.2 An Equilibrium Term Structure Model
9.3 Option Pricing with Random Interest Rates

Chapter 10 Arbitrage, Martingales, and Pricing Kernels
10.1 Arbitrage and Martingales
10.2 Arbitrage and Pricing Kernels
10.3 Alternative Price Deflators
10.4 Applications

Chapter 11 Mixing Diffusion and Jump Processes
11.1 Modeling Jumps in Continuous Time
11.2 Itô’s Lemma for Jump-Diffusion Processes
11.3 Valuing Contingent Claims


Chapter 12 Continuous-Time Consumption and Portfolio Choice
12.1 Model Assumptions
12.2 Continuous-Time Dynamic Programming
12.3 Solving the Continuous-Time Problem
12.4 The Martingale Approach to Consumption and Portfolio Choice

Chapter 13 Equilibrium Asset Returns
13.1 An Intertemporal Capital Asset Pricing Model
13.2 Breeden’s Consumption CAPM
13.3 A Cox, Ingersoll, and Ross Production Economy

Chapter 14 Time-Inseparable Utility
14.1 Constantinides’ Internal Habit Model
14.2 Campbell and Cochrane’s External Habit Model
14.3 Recursive Utility


Chapter 15 Behavioral Finance and Asset Pricing
15.1 The Effects of Psychological Biases on Asset Prices
15.2 The Impact of Irrational Traders on Asset Prices

Chapter 16 Asset Pricing with Differential Information
16.1 Equilibrium with Private Information
16.2 Asymmetric Information, Trading, and Markets

Chapter 17 Models of the Term Structure of Interest Rates
17.1 Equilibrium Term Structure Models
17.2 Valuation Models for Interest Rate Derivatives

Chapter 18 Models of Default Risk
18.1 The Structural Approach
18.2 The Reduced-Form Approach

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