Theory of asset pricing /

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Bibliographic Details
Author / Creator:	Pennacchi, George Gaetano.
Imprint:	Boston : Pearson/Addison-Wesley, c2008.
Description:	xvii, 457 p. : ill. ; 24 cm.
Language:	English
Series:	The Addison-Wesley series in finance
Subject:	Capital assets pricing model. Securities. Capital assets pricing model. Securities.
Format:	Print Book
URL for this record:	http://pi.lib.uchicago.edu/1001/cat/bib/6242011

Hidden Bibliographic Details
ISBN:	032112720X (alk. paper) 9780321127204 (alk. paper)
Notes:	Includes bibliographical references (p. 415-431) and index.

Table of Contents:

Preface
Part I. Single-Period Portfolio Choice and Asset Pricing
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
1.4. Summary
1.5. Exercises
2. Mean-Variance Analysis
2.1. Assumptions on Preferences and Asset Returns
2.2. Investor Indifference Relations
2.3. The Efficient Frontier
2.3.1. A Simple Example
2.3.2. Mathematics of the Efficient Frontier
2.3.3. Portfolio Separation
2.4. The Efficient Frontier with a Riskless Asset
2.4.1. An Example with Negative Exponential Utility
2.5. An Application to Cross-Hedging
2.6. Summary
2.7. Exercises
3. CAPM, Arbitrage, and Linear Factor Models
3.1. The Capital Asset Pricing Model
3.1.1. Characteristics of the Tangency Portfolio
3.1.2. Market Equilibrium
3.2. Arbitrage
3.2.1. Examples of Arbitrage Pricing
3.3. Linear Factor Models
3.4. Summary
3.5. Exercises
4. Consumption-Savings Decisions and State Pricing
4.1. Consumption and Portfolio Choices
4.2. An Asset Pricing Interpretation
4.2.1. Real versus Nominal Returns
4.2.2. Risk Premia and the Marginal Utility of Consumption
4.2.3. The Relationship to CAPM
4.2.4. Bounds on Risk Premia
4.3. Market Completeness, Arbitrage, and State Pricing
4.3.1. Complete Markets Assumptions
4.3.2. Arbitrage and State Prices
4.3.3. Risk-Neutral Probabilities
4.3.4. State Pricing Extensions
4.4. Summary
4.5. Exercises
Part II. Multiperiod Consumption, Portfolio Choice, and Asset Pricing
5. A Multiperiod Discrete-Time Model of Consumption and Portfolio Choice
5.1. Assumptions and Notation of the Model
5.1.1. Preferences
5.1.2. The Dynamics of Wealth
5.2. Solving the Multiperiod Model
5.2.1. The Final Period Solution
5.2.2. Deriving the Bellman Equation
5.2.3. The General Solution
5.3. Example Using Log Utility
5.4. Summary
5.5. Exercises
6. Multiperiod Market Equilibrium
6.1. Asset Pricing in the Multiperiod Model
6.1.1. The Multiperiod Pricing Kernel
6.2. The Lucas Model of Asset Pricing
6.2.1. Including Dividends in Asset Returns
6.2.2. Equating Dividends to Consumption
6.2.3. Asset Pricing Examples
6.2.4. A Lucas Model with Labor Income
6.3. Rational Asset Price Bubbles
6.3.1. Examples of Bubble Solutions
6.3.2. The Likelihood of Rational Bubbles
6.4. Summary
6.5. Exercises
Part III. Contingent Claims Pricing
7. Basics of Derivative Pricing
7.1. Forward and Option Contracts
7.1.1. Forward Contracts on Assets Paying Dividends
7.1.2. Basic Characteristics of Option Prices
7.2. Binomial Option Pricing
7.2.1. Valuing a One-Period Option
7.2.2. Valuing a Multiperiod Option
7.3. Binomial Model Applications
7.3.1. Calibrating the Model
7.3.2. Valuing an American Option
7.3.3. Options on Dividend-Paying Assets
7.4. Summary
7.5. Exercises
8. Essentials of Diffusion Processes and Ito's Lemma
8.1. Pure Brownian Motion
8.1.1. The Continuous-Time Limit
8.2. Diffusion Processes
8.2.1. Definition of an Ito Integral
8.3. Functions of Continuous-Time Processes and Ito's Lemma
8.3.1. Geometric Brownian Motion
8.3.2. Kolmogorov Equation
8.3.3. Multivariate Diffusions and Ito's Lemma
8.4. Summary
8.5. Exercises
9. Dynamic Hedging and PDE Valuation
9.1. Black-Scholes Option Pricing
9.1.1. Portfolio Dynamics in Continuous Time
9.1.2. Black-Scholes Model Assumptions
9.1.3. The Hedge Portfolio
9.1.4. No-Arbitrage Implies a PDE
9.1. An Equilibrium Term Structure Model
9.2.1. A Bond Risk Premium
9.2.2. Characteristics of Bond Prices
9.3. Option Pricing with Random Interest Rates
9.4. Summary
9.5. Exercises
10. Arbitrage, Martingales, and Pricing Kernels
10.1. Arbitrage and Martingales
10.1.1. A Change in Probability: Girsanov's Theorem
10.1.2. Money Market Deflator
10.1.3. Feynman-Kac Solution
10.2. Arbitrage and Pricing Kernels
10.2.1. Linking the Valuation Methods
10.2.2. The Multivariate Case
10.3. Alternative Price Deflators
10.4. Applications
10.4.1. Continuous Dividends
10.4.2. The Term Structure Revisited
10.5. Summary
10.6. Exercises
11. Mixing Diffusion and Jump Processes
11.1. Modeling Jumps in Continuous Time
11.2. Ito's Lemma for Jump-Diffusion Processes
11.3. Valuing Contingent Claims
11.3.1. An Imperfect Hedge
11.3.2. Diversifiable Jump Risk
11.3.3. Lognormal Jump Proportions
11.3.4. Nondiversifiable Jump Risk
11.3.5. Black-Scholes versus Jump-Diffusion Model
11.4. Summary
11.5. Exercises
Part IV. Asset Pricing in Continuous Time
12. Continuous-Time Consumption and Portfolio Choice
12.1. Model Assumptions
12.2. Continuous-Time Dynamic Programming
12.3. Solving the Continuous-Time Problem
12.3.1. Constant Investment Opportunities
12.3.2. Changing Investment Opportunities
12.4. The Martingale Approach to Consumption and Portfolio Choice
12.4.1. Market Completeness Assumptions
12.4.2. The Optimal Consumption Plan
12.4.3. The Portfolio Allocation
12.4.4. An Example
12.5. Summary
12.6. Exercises
13. Equilibrium Asset Returns
13.1. An Intertemporal Capital Asset Pricing Model
13.1.1. Constant Investment Opportunities
13.1.2. Stochastic Investment Opportunities
13.1.3. An Extension to State-Dependent Utility
13.2. Breeden's Consumption CAPM
13.3. A Cox, Ingersoll, and Ross Production Economy
13.3.1. An Example Using Log Utility
13.4. Summary
13.5. Exercises
14. Time-Inseparable Utility
14.1. Constantinides' Internal Habit Model
14.1.1. Assumptions
14.1.2. Consumption and Portfolio Choices
14.2. Campbell and Cochrane's External Habit Model
14.2.1. Assumptions
14.2.2. Equilibrium Asset Prices
14.3. Recursive Utility
14.3.1. A Model by Obstfeld
14.3.2. Discussion of the Model
14.4. Summary
14.5. Exercises
Part V. Additional Topics in Asset Pricing
15. Behavioral Finance and Asset Pricing
15.1. The Effects of Psychological Biases on Asset Prices
15.1.1. Assumptions
15.1.2. Solving the Model
15.1.3. Model Results
15.2. The Impact of Irrational Traders on Asset Prices
15.2.1. Assumptions
15.2.2. Solution Technique
15.2.3. Analysis of the Results
15.3. Summary
15.4. Exercises
16. Asset Pricing with Differential Information
16.1. Equilibrium with Private Information
16.1.1. Grossman Model Assumptions
16.1.2. Individuals'Asset Demands
16.1.3. A Competitive Equilibrium
16.1.4. A Rational Expectations Equilibrium
16.1.5. A Noisy Rational Expectations Equilibrium
16.2. Asymmetric Information, Trading, and Markets
16.2.1. Kyle Model Assumptions
16.2.2. Trading and Pricing Strategies
16.2.3. Analysis of the Results
16.3. Summary
16.4. Exercises
17. Models of the Term Structure of Interest Rates
17.1. Equilibrium Term Structure Models
17.1.1. Affine Models
17.1.2. Quadratic Gaussian Models
17.1.3. Other Equilibrium Models
17.2. Valuation Models for Interest Rate Derivatives
17.2.1. Heath-Jarrow-Morton Models
17.2.2. Market Models
17.2.3. Random Field Models
17.3. Summary
17.4. Exercises
18. Models of Default Risk
18.1. The Structural Approach
18.2. The Reduced-Form Approach
18.2.1. A Zero-Recovery Bond
18.2.2. Specifying Recovery Values
18.2.3. Examples
18.3. Summary
18.4. Exercises
References
Index

Theory of asset pricing /

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