Synopses & Reviews
Dynamic Asset Pricing Theory is a textbook 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. For simplicity, all continuous-time models are based on Brownian motion. Applications include term structure models, derivative valuation and hedging methods, and dynamic programming algorithms for portfolio choice and optimal exercise of American options. Numerical methods covered include Monte Carlo simulation and finite-difference solvers for partial differential equations. Each chapter provides extensive problem exercises and notes to the literature.
This second edition is substantially longer, while still retaining the conciseness for which the first edition was praised. All chapters from the first edition have been revised. Two new chapters have been added on term structure modeling and on derivative securities. References have been updated throughout. With this new edition, Dynamic Asset Pricing Theory remains the definitive textbook in the field.
Review
"This is an important addition to the set of text/reference books on asset pricing theory. It will, if it has not already, become the standard text for the second Ph.D. course in security markets. Its treatment of contigent claim valuation, in particular, is unrivaled in its breadth and coherence."--Journal of Economic Literature
Description
Includes bibliographical references (p. 311-369) and indexes.
Table of Contents
| Preface | |
1 | An Introduction to State Pricing | 3 |
2 | The Basic Multiperiod Model | 21 |
3 | The Dynamic Programming Approach | 47 |
4 | The Infinite-Horizon Setting | 63 |
5 | The Black-Scholes Model | 81 |
6 | State Prices and Equivalent Martingale Measures | 101 |
7 | Term-Structure Models | 129 |
8 | Derivative Assets | 165 |
9 | Optimal Portfolio and Consumption Choice | 191 |
10 | Equilibrium | 219 |
11 | Numerical Methods | 243 |
| App. A Probability - The Finite-State Case | 271 |
| App. B Separating Hyperplanes and Optimality | 275 |
| App. C Probability - The General Case | 279 |
| App. D Stochastic Integration | 285 |
| App. E SDEs, PDEs, and the Feynman-Kac Formula | 291 |
| App. F Calculation of Utility Gradients | 299 |
| App. G Finite Difference Computer Code | 305 |
| Bibliography | 311 |
| Symbol Glossary | 371 |
| Author Index | 373 |
| Subject Index | 383 |