Asset Pricing and Portfolio Choice Theory
In Asset Pricing and Portfolio Choice Theory, Kerry E. Back at last offers what is at once a welcoming introduction to and a comprehensive overview of asset pricing. Useful as a textbook for graduate students in finance, with extensive exercises and a solutions manual available for professors, the book will also serve as an essential reference for scholars and professionals, as it includes detailed proofs and calculations as section appendices.
Topics covered include the classical results on single-period, discrete-time, and continuous-time models, as well as various proposed explanations for the equity premium and risk-free rate puzzles and chapters on heterogeneous beliefs, asymmetric information, non-expected utility preferences, and production models. The book includes numerous exercises designed to provide practice with the concepts and to introduce additional results. Each chapter concludes with a notes and references section that supplies pathways to additional developments in the field.
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absolute risk aversion affine aggregate arbitrage opportunities asset price Assume assumption Bellman equation beta pricing model Black–Scholes budget constraint called CAPM CARA utility certainty equivalent Consider covariance CRRA defined denote derivative discount bond discount factor end-of-period equal equilibrium price Exercise expected return expected utility finite first-order condition gamble geometric Brownian motion ICAPM implies initial wealth investment investor h linear local martingale martingale matrix maximize mean mean-variance frontier nonnegative normally distributed optimal portfolio option orthogonal Pareto Pareto optimal payoff portfolio choice preferences quadratic random variable relative risk aversion representative investor risk aversion risk premium risk tolerance risk-free asset risk-free rate risk-free return risk-neutral probability risky asset satisfies SDF process Section Sharpe ratio Show stochastic process Suppose theorem underlying asset utility function value function variance vector volatility zero