Reviews 4 Asset Pricing Theory is an advanced textbook for doctoral students and researchers that offers a modern introduction to the theoretical and methodological foundations of competitive asset pricing. It will speak to you in a well-designed, and thoughtful manner encouraging you to read a high-level and rigorous development of the subject regardless of your age, profession or position as economists, mathematicians, financial engineers, and physicists. I predict that Asset Pricing Theory will establish itself as a standard reference for many years to come, and this is the quality I admire—a quality that can only be born from experience. Read this book if you want to lead an organization, or lead the way. I like the book very much and would recommend it for use in any serious asset pricing theory subject. There is nothing more rigorous, elegant, or thoughtful on the subject.
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Models are developed for a finite information tree, but from an advanced perspective that motivates and builds intuition toward continuous-time modeling.
The course develops in depth a conceptual and analytical framework for understanding the pricing of these features, as well as strategies for managing risk. Covered topics include the following. Basic risk-management strategies using forward contracts, call and put options. Arbitrage relationship between spot prices and forward prices based on the role of dividends, cost of carry and convenience yields, with applications to securities lending, commodities and foreign exchange. An overview of futures markets: OTC markets versus exchanges, mark-to-market, margins, the role of clearinghouses.
Statistical hedging with futures and the notion of basis risk. Introduction to swaps as a natural extension of forwards and futures. Fundamental option-pricing results such as put-call parity including for hard-to-short stocks , general patterns in the optimal exercise of American options, and how the pricing of risk relates to the time horizon.
Binomial pricing and hedging, and its limiting Black-Scholes model and associated hedging and market-making techniques. Overview of option pricing applications in corporate and other settings.
Asset Pricing Theory