The course is an introduction to the modern theory of asset pricing. We will have 10 lectures of three hours each. The first two hours will have a standard lecture approach. The last hour will sometimes be devoted to applications and problem solving. The course is theoretical. The empirics of asset pricing is covered in other courses.
The student will learn the foundations of asset pricing and, more specifically, the topics indicated below. The course is quantitative. The student will learn how to model asset pricing and how to solve complex problems. The student will learn theoretical models and their applications.
We will cover topics such as:
The role of financial markets and empirical regularities,
The stochastic discount factor,
Arrow-Debreu prices and equivalent martingale measures,
The law of one price and absence of arbitrage,
CAPM (capital asset pricing model) and APT (arbitrage pricing theory),
Mean-variance analysis, the efficient frontier,
The Sharpe ratio,
The Equity Premium Puzzle.
80% examination (2 hours); 20% coursework.
Current students should refer to Moodle for specific details of the current year’s assessment.
Danthine and Donaldson, “Intermediate Financial Theory”, Elsevier.
john Cochrane, (2005), “Asset Pricing”, Princeton University Press
Kerry Back (2010), “Asset Pricing and Portfolio Choice Theory”, Oxford University Press
Stephen F. LeRoy and Jan Werner, (2001), “Principles of Financial Economics”, Cambridge University Press (optional).
Yvan Lengwiler, (2006), Microfoundations of Financial Economics: An Introduction to General Equilibrium Asset Pricing