Asset Pricing Theory


Aims

The goal of this course is to obtain a thorough and rigorous background in the theory of asset pricing, which aims to explain the prices of financial assets such us stocks, bonds, or derivative securities. Asset pricing theory is highly relevant in the field of financial economics because asset pricing models form the basis of any study in investments and are also instrumental in studying capital budgeting, risk management, portfolio selection, and evaluation. 

 

Information

This course begins with an overview of the fundamental principles of finance starting from (expected) utility theory, equilibrium and no-arbitrage. Subsequently standard finance results in mean-variance setting will be presented such as mean-variance efficiency and spanning. Extensions to the multifactor efficiency, conditional efficiency, models with non-marketable assets and the consumption based pricing are considered as well. 

Assessment

Take-home written exam

Materials

  • George Pennacchi, Theory of Asset Pricing, Pearson Addison Wesley (selected chapters)
  • John H. Cochrane, Asset Pricing (Revised Edition), Princeton University Press (selected chapters)
  • Selected journal articles