Financial Asset Pricing Theory

Author: Claus Munk

Publisher: OUP Oxford

ISBN: 0191654140

Category: Business & Economics

Page: 600

View: 8233

Financial Asset Pricing Theory offers a comprehensive overview of the classic and the current research in theoretical asset pricing. Asset pricing is developed around the concept of a state-price deflator which relates the price of any asset to its future (risky) dividends and thus incorporates how to adjust for both time and risk in asset valuation. The willingness of any utility-maximizing investor to shift consumption over time defines a state-price deflator which provides a link between optimal consumption and asset prices that leads to the Consumption-based Capital Asset Pricing Model (CCAPM). A simple version of the CCAPM cannot explain various stylized asset pricing facts, but these asset pricing 'puzzles' can be resolved by a number of recent extensions involving habit formation, recursive utility, multiple consumption goods, and long-run consumption risks. Other valuation techniques and modelling approaches (such as factor models, term structure models, risk-neutral valuation, and option pricing models) are explained and related to state-price deflators. The book will serve as a textbook for an advanced course in theoretical financial economics in a PhD or a quantitative Master of Science program. It will also be a useful reference book for researchers and finance professionals. The presentation in the book balances formal mathematical modelling and economic intuition and understanding. Both discrete-time and continuous-time models are covered. The necessary concepts and techniques concerning stochastic processes are carefully explained in a separate chapter so that only limited previous exposure to dynamic finance models is required.

Finance Theory and Asset Pricing

Author: Frank Milne

Publisher: Oxford University Press

ISBN: 9780198773986

Category: Capital assets pricing model

Page: 128

View: 4031

This book provides a concise guide to financial asset pricing theory. Assuming a basic knowledge of graduate microeconomic theory, it explores the fundamental ideas that underlie competitive financial asset pricing models with symmetric information. Using finite dimensional techniques, this book avoids sophisticated mathematics and exploits economic theory to clarify the essential structure of recent research in asset pricing. In particular it explores arbitrage pricing models with and without diversification, Martingale pricing methods, representative agent pricing models; discusses these ideas in two date and multi-date models; and provides a range of examples from the literature.

Financial Markets Theory

Equilibrium, Efficiency and Information

Author: Emilio Barucci,Claudio Fontana

Publisher: Springer

ISBN: 1447173228

Category: Mathematics

Page: 836

View: 730

This work, now in a thoroughly revised second edition, presents the economic foundations of financial markets theory from a mathematically rigorous standpoint and offers a self-contained critical discussion based on empirical results. It is the only textbook on the subject to include more than two hundred exercises, with detailed solutions to selected exercises. Financial Markets Theory covers classical asset pricing theory in great detail, including utility theory, equilibrium theory, portfolio selection, mean-variance portfolio theory, CAPM, CCAPM, APT, and the Modigliani-Miller theorem. Starting from an analysis of the empirical evidence on the theory, the authors provide a discussion of the relevant literature, pointing out the main advances in classical asset pricing theory and the new approaches designed to address asset pricing puzzles and open problems (e.g., behavioral finance). Later chapters in the book contain more advanced material, including on the role of information in financial markets, non-classical preferences, noise traders and market microstructure. This textbook is aimed at graduate students in mathematical finance and financial economics, but also serves as a useful reference for practitioners working in insurance, banking, investment funds and financial consultancy. Introducing necessary tools from microeconomic theory, this book is highly accessible and completely self-contained. Advance praise for the second edition: "Financial Markets Theory is comprehensive, rigorous, and yet highly accessible. With their second edition, Barucci and Fontana have set an even higher standard!"Darrell Duffie, Dean Witter Distinguished Professor of Finance, Graduate School of Business, Stanford University "This comprehensive book is a great self-contained source for studying most major theoretical aspects of financial economics. What makes the book particularly useful is that it provides a lot of intuition, detailed discussions of empirical implications, a very thorough survey of the related literature, and many completely solved exercises. The second edition covers more ground and provides many more proofs, and it will be a handy addition to the library of every student or researcher in the field."Jaksa Cvitanic, Richard N. Merkin Professor of Mathematical Finance, Caltech "The second edition of Financial Markets Theory by Barucci and Fontana is a superb achievement that knits together all aspects of modern finance theory, including financial markets microstructure, in a consistent and self-contained framework. Many exercises, together with their detailed solutions, make this book indispensable for serious students in finance."Michel Crouhy, Head of Research and Development, NATIXIS

Asset Pricing

-Discrete Time Approach-

Author: T. Kariya,Regina Liu

Publisher: Springer Science & Business Media

ISBN: 1441992308

Category: Business & Economics

Page: 275

View: 6023

1. Main Goals The theory of asset pricing has grown markedly more sophisticated in the last two decades, with the application of powerful mathematical tools such as probability theory, stochastic processes and numerical analysis. The main goal of this book is to provide a systematic exposition, with practical appli cations, of the no-arbitrage theory for asset pricing in financial engineering in the framework of a discrete time approach. The book should also serve well as a textbook on financial asset pricing. It should be accessible to a broad audi ence, in particular to practitioners in financial and related industries, as well as to students in MBA or graduate/advanced undergraduate programs in finance, financial engineering, financial econometrics, or financial information science. The no-arbitrage asset pricing theory is based on the simple and well ac cepted principle that financial asset prices are instantly adjusted at each mo ment in time in order not to allow an arbitrage opportunity. Here an arbitrage opportunity is an opportunity to have a portfolio of value aat an initial time lead to a positive terminal value with probability 1 (equivalently, at no risk), with money neither added nor subtracted from the portfolio in rebalancing dur ing the investment period. It is necessary for a portfolio of valueato include a short-sell position as well as a long-buy position of some assets.

Advanced Asset Pricing Theory

Author: Chenghu Ma

Publisher: World Scientific

ISBN: 184816632X

Category: Business & Economics

Page: 780

View: 4916

This book provides a broad introduction to modern asset pricing theory. The theory is self-contained and unified in presentation. Both the no-arbitrage and the general equilibrium approaches of asset pricing theory are treated coherently within the general equilibrium framework. It fills a gap in the body of literature on asset pricing for being both advanced and comprehensive. The absence of arbitrage opportunities represents a necessary condition for equilibrium in the financial markets. However, the absence of arbitrage is not a sufficient condition for establishing equilibrium. These interrelationships are overlooked by the proponents of the no-arbitrage approach to asset pricing.This book also tackles recent advancement on inversion problems raised in asset pricing theory, which include the information role of financial options and the information content of term structure of interest rates and interest rates contingent claims.The inclusion of the proofs and derivations to enhance the transparency of the underlying arguments and conditions for the validity of the economic theory made it an ideal advanced textbook or reference book for graduate students specializing in financial economics and quantitative finance. The detailed explanations will capture the interest of the curious reader, and it is complete enough to provide the necessary background material needed to delve deeper into the subject and explore the research literature.Postgraduate students in economics with a good grasp of calculus, linear algebra, and probability and statistics will find themselves ready to tackle topics covered in this book. They will certainly benefit from the mathematical coverage in stochastic processes and stochastic differential equation with applications in finance. Postgraduate students in financial mathematics and financial engineering will also benefit, not only from the mathematical tools introduced in this book, but also from the economic ideas underpinning the economic modeling of financial markets.Both these groups of postgraduate students will learn the economic issues involved in financial modeling. The book can be used as an advanced text for Masters and PhD students in all subjects of financial economics, financial mathematics, mathematical finance, and financial engineering. It is also an ideal reference for practitioners and researchers in the subjects.

Arbitrage Theory

Introductory Lectures on Arbitrage-Based Financial Asset Pricing

Author: Jochen E.M. Wilhelm

Publisher: Springer Science & Business Media

ISBN: 3642500943

Category: Business & Economics

Page: 116

View: 8470

The present 'Introductory Lectures on Arbitrage-based Financial Asset Pricing' are a first attempt to give a comprehensive presentation of Arbitrage Theory in a discrete time framework (by the way: all the re sults given in these lectures apply to a continuous time framework but, probably, in continuous time we could achieve stronger results - of course at the price of stronger assumptions). It has been turned out in the last few years that capital market theory as derived and evolved from the capital asset pricing model (CAPM) in the middle sixties, can, to an astonishing extent, be based on arbitrage arguments only, rather than on mean-variance preferences of investors. On the other hand, ar bitrage arguments provided access to a wider range of results which could not be obtained by standard CAPM-methods, e. g. the valuation of contingent claims (derivative assets) Dr the_ investigation of futures prices. To some extent the presentation will loosely follow historical lines. A selected set of capital asset pricing models will be derived according to their historical progress and their increasing complexity as well. It will be seen that they all share common structural properties. After having made this observation the presentation will become an axiomatical one: it will be stated in precise terms what arbitrage is about and what the consequences are if markets do not allow for risk-free arbitrage opportunities. The presentation will partly be accompanied by an illus trating example: two-state option pricing.

Grundlagen und Anwendung der Arbitrage Pricing Theory

Author: Florian Plesmann

Publisher: GRIN Verlag

ISBN: 364064848X

Category: Business & Economics

Page: 16

View: 7409

Studienarbeit aus dem Jahr 2009 im Fachbereich BWL - Investition und Finanzierung, Note: 1,0, Hochschule für Wirtschaft und Umwelt Nürtingen-Geislingen; Standort Nürtingen, Veranstaltung: Investmentanalyse und -management, Sprache: Deutsch, Abstract: Neben dem Capital Asset Pricing Model (CAPM) ist die Arbitrage Pricing Theory (APT) eine der beiden grundlegenden Kapitalmarkttheorien. Diese haben das Ziel, sowohl den Zusammenhang zwischen Ertrag und Risiko als auch die Preisbildung auf den Kapitalmärkten zu erklären. Der Trade-Off zwischen den Größen Rendite und Risiko ist zentrales Element der Betrachtungen. Die Arbitrage Pricing Theory wurde im Jahre 1976 als Alternative zum erfolgreichen CAPM von Stephen A. Ross veröffentlicht und wird im Rahmen dieser Seminararbeit grundlegend erläutert. Dazu wird im ersten Schritt der Weg vom Ein-Faktor-Modell zum Multi-Faktor-Modell beschrieben. Weiterhin werden der Aufbau der APT, die Modellprämissen und die Herleitung erörtert. Ein zusätzlicher Schwerpunkt liegt auf der Betrachtung einer adäquaten Faktorwahl, von der die Prognosekraft des Modells letztendlich maßgeblich abhängt. Des Weiteren wird die Anwendung der Arbitrage Pricing Theory in der Praxis untersucht und abschließend die Validität des Modells in einer kritischen Würdigung beleuchtet.

Handbook of the Economics of Finance

Financial Markets and Asset Pricing

Author: G. Constantinides,Rene M. Stulz,M. Harris

Publisher: Elsevier

ISBN: 9780080495088

Category: Business & Economics

Page: 694

View: 9899

Volume 1B covers the economics of financial markets: the saving and investment decisions; the valuation of equities, derivatives, and fixed income securities; and market microstructure.

The Arbitrage Pricing Theory as an Approach to Capital Asset Valuation

Author: Christian Koch

Publisher: GRIN Verlag

ISBN: 3640277856

Category:

Page: 80

View: 1861

Diploma Thesis from the year 1996 in the subject Business economics - Banking, Stock Exchanges, Insurance, Accounting, grade: 1,3, European Business School - International University Schloss Reichartshausen Oestrich-Winkel, 160 entries in the bibliography, language: English, abstract: A "few surprises" could be the trivial answer of the Arbitrage Pricing Theory if asked for the major determinants of stock returns. The APT was developed as a traceable framework of the main principles of capital asset pricing in financial markets. It investigates the causes underlying one of the most important fields in financial economics, namely the relationship between risk and return. The APT provides a thorough understanding of the nature and origins of risk inherent in financial assets and how capital markets reward an investor for bearing risk. Its fundamental intuition is the absence of arbitrage which is, indeed, central to finance and which has been used in virtually all areas of financial study. Since its introduction two decades ago, the APT has been subject to extensive theoretical as well as empirical research. By now, the arbitrage theory is well established in both respects and has enlightened our perception of capital markets. This paper aims to present the APT as an appropriate instrument of capital asset pricing and to link its principles to the valuation of risky income streams. The objective is also to provide an overview of the state of art of APT in the context of alternative capital market theories. For this purpose, Section 2 describes the basic concepts of the traditional asset pricing model, the CAPM, and indicates differences to arbitrage theory. Section 3 constitutes the main part of this paper introducing a derivation of the APT. Emphasis is laid on principles rather than on rigorous proof. The intuition of the pricing formula and its consistency with the state space preference theory are discussed. Important contributions to the APT are classified and b

Asset Pricing and Portfolio Choice Theory

Author: Kerry E. Back

Publisher: Oxford University Press

ISBN: 0190241152

Category: Business & Economics

Page: 608

View: 844

In the 2nd edition of Asset Pricing and Portfolio Choice Theory, Kerry E. Back offers a concise yet comprehensive introduction to and overview of asset pricing. Intended as a textbook for asset pricing theory courses at the Ph.D. or Masters in Quantitative Finance level with extensive exercises and a solutions manual available for professors, the book is also an essential reference for financial researchers and professionals, as it includes detailed proofs and calculations as section appendices. The first two parts of the book explain portfolio choice and asset pricing theory in single-period, discrete-time, and continuous-time models. For valuation, the focus throughout is on stochastic discount factors and their properties. A section on derivative securities covers the usual derivatives (options, forwards and futures, and term structure models) and also applications of perpetual options to corporate debt, real options, and optimal irreversible investment. A chapter on "explaining puzzles" and the last part of the book provide introductions to a number of additional current topics in asset pricing research, including rare disasters, long-run risks, external and internal habits, asymmetric and incomplete information, heterogeneous beliefs, and non-expected-utility preferences. Each chapter includes a "Notes and References" section providing additional pathways to the literature. Each chapter also includes extensive exercises.

Asset Pricing and Portfolio Choice Theory

Author: Kerry Back

Publisher: Oxford University Press, USA

ISBN: 0195380614

Category: Business & Economics

Page: 487

View: 7200

This book is intended as a textbook for Ph.D. students in finance and as a reference book for academics. It is written at an introductory level but includes detailed proofs and calculations as section appendices. It covers the classical results on single-period, discrete-time, and continuous-time models. It also treats various proposed explanations for the equity premium and risk-free rate puzzles: persistent heterogeneous idiosyncratic risks, internal habits, external habits, and recursive utility. Most of the book assumes rational behavior, but two topics important for behavioral finance are covered: heterogeneous beliefs and non-expected-utility preferences. There are also chapters on asymmetric information and production models. The book includes numerous exercises designed to provide practice with the concepts and also to introduce additional results. Each chapter concludes with a notes and references section that supplies references to additional developments in the field.

Arbitrage Pricing Theory

Author: Jens Jannasch

Publisher: GRIN Verlag

ISBN: 3638283828

Category: Business & Economics

Page: 33

View: 5016

Studienarbeit aus dem Jahr 2003 im Fachbereich BWL - Investition und Finanzierung, Europa-Universität Viadrina Frankfurt (Oder) (Lehrstuhl für Allgemeine Betriebswirtschaftslehre, insbesondere Statistik), Veranstaltung: Introduction into Financial Mathematics, Sprache: Deutsch, Abstract: This paper introduces the Arbitrage Pricing Theory (APT) originally derived by Ross in 1976. Therefore it stresses the assumptions and the derivation of this theory. Extensions of this theory should not be focused in this paper, which concentrates on the capital market equilibrium in large markets and in a discrete time horizon. The differences between the APT and the CAPM should also be pointed out, too. Finally this paper closes with an example, that shows how to estimate the coefficients of this theory. Wie auch das CAPM1 beschreibt die Arbitrage Pricing Theory die Beziehung der erwarteten Renditen zum Risiko. Es gehört damit zu den Modellen, die das Kapitalmarktgleichgewicht beschreiben. Diese Arbeit soll eine Einführung in die Arbitrage Pricing Theory sein. Sie macht es sich zum Ziel, die Annahmen und die Aussagen dieses Modells vorzustellen. Anschließend soll die APT mit dem CAPM, den bekanntestem Kapitalmarktgleichgewichtsmodell, verglichen werden. Die in den letzten Jahren publizierten Erweiterungen2 des Modells, sollen in dieser Arbeit nicht diskutiert werden. Es werden die Annahmen und die Erkenntnisse der APT herausgearbeitet. Anschließend soll ein Vergleich der APT mit dem CAPM den theoretischen Teil dieser Arbeit abschließen, bevor sie mit einer eher praktisch orientierten Anwendung der APT endet. 1 Vgl. Sharp(1964), Lintner(1965), Mosin(1966)

Handbooks in Operations Research and Management Science: Financial Engineering

Author: John R. Birge,Vadim Linetsky

Publisher: Elsevier

ISBN: 9780080553252

Category: Business & Economics

Page: 1026

View: 8552

The remarkable growth of financial markets over the past decades has been accompanied by an equally remarkable explosion in financial engineering, the interdisciplinary field focusing on applications of mathematical and statistical modeling and computational technology to problems in the financial services industry. The goals of financial engineering research are to develop empirically realistic stochastic models describing dynamics of financial risk variables, such as asset prices, foreign exchange rates, and interest rates, and to develop analytical, computational and statistical methods and tools to implement the models and employ them to design and evaluate financial products and processes to manage risk and to meet financial goals. This handbook describes the latest developments in this rapidly evolving field in the areas of modeling and pricing financial derivatives, building models of interest rates and credit risk, pricing and hedging in incomplete markets, risk management, and portfolio optimization. Leading researchers in each of these areas provide their perspective on the state of the art in terms of analysis, computation, and practical relevance. The authors describe essential results to date, fundamental methods and tools, as well as new views of the existing literature, opportunities, and challenges for future research.

Portfolio Selection and Asset Pricing

Author: Shouyang Wang,Yusen Xia

Publisher: Springer Science & Business Media

ISBN: 3642559344

Category: Business & Economics

Page: 200

View: 7515

In our daily life, almost every family owns a portfolio of assets. This portfolio could contain real assets such as a car, or a house, as well as financial assets such as stocks, bonds or futures. Portfolio theory deals with how to form a satisfied portfolio among an enormous number of assets. Originally proposed by H. Markowtiz in 1952, the mean-variance methodology for portfolio optimization has been central to the research activities in this area and has served as a basis for the development of modem financial theory during the past four decades. Follow-on work with this approach has born much fruit for this field of study. Among all those research fruits, the most important is the capital asset pricing model (CAPM) proposed by Sharpe in 1964. This model greatly simplifies the input for portfolio selection and makes the mean-variance methodology into a practical application. Consequently, lots of models were proposed to price the capital assets. In this book, some of the most important progresses in portfolio theory are surveyed and a few new models for portfolio selection are presented. Models for asset pricing are illustrated and the empirical tests of CAPM for China's stock markets are made. The first chapter surveys ideas and principles of modeling the investment decision process of economic agents. It starts with the Markowitz criteria of formulating return and risk as mean and variance and then looks into other related criteria which are based on probability assumptions on future prices of securities.

Continuous-Time Asset Pricing Theory

A Martingale-Based Approach

Author: Robert A. Jarrow

Publisher: Springer

ISBN: 3319778218

Category: Mathematics

Page: 448

View: 8953

Yielding new insights into important market phenomena like asset price bubbles and trading constraints, this is the first textbook to present asset pricing theory using the martingale approach (and all of its extensions). Since the 1970s asset pricing theory has been studied, refined, and extended, and many different approaches can be used to present this material. Existing PhD–level books on this topic are aimed at either economics and business school students or mathematics students. While the first mostly ignore much of the research done in mathematical finance, the second emphasizes mathematical finance but does not focus on the topics of most relevance to economics and business school students. These topics are derivatives pricing and hedging (the Black–Scholes–Merton, the Heath–Jarrow–Morton, and the reduced-form credit risk models), multiple-factor models, characterizing systematic risk, portfolio optimization, market efficiency, and equilibrium (capital asset and consumption) pricing models. This book fills this gap, presenting the relevant topics from mathematical finance, but aimed at Economics and Business School students with strong mathematical backgrounds.

Financial Decisions and Markets

A Course in Asset Pricing

Author: John Y. Campbell

Publisher: Princeton University Press

ISBN: 1400888220

Category: Business & Economics

Page: 480

View: 420

From the field's leading authority, the most authoritative and comprehensive advanced-level textbook on asset pricing In Financial Decisions and Markets, John Campbell, one of the field’s most respected authorities, provides a broad graduate-level overview of asset pricing. He introduces students to leading theories of portfolio choice, their implications for asset prices, and empirical patterns of risk and return in financial markets. Campbell emphasizes the interplay of theory and evidence, as theorists respond to empirical puzzles by developing models with new testable implications. The book shows how models make predictions not only about asset prices but also about investors’ financial positions, and how they often draw on insights from behavioral economics. After a careful introduction to single-period models, Campbell develops multiperiod models with time-varying discount rates, reviews the leading approaches to consumption-based asset pricing, and integrates the study of equities and fixed-income securities. He discusses models with heterogeneous agents who use financial markets to share their risks, but also may speculate against one another on the basis of different beliefs or private information. Campbell takes a broad view of the field, linking asset pricing to related areas, including financial econometrics, household finance, and macroeconomics. The textbook works in discrete time throughout, and does not require stochastic calculus. Problems are provided at the end of each chapter to challenge students to develop their understanding of the main issues in financial economics. The most comprehensive and balanced textbook on asset pricing available, Financial Decisions and Markets is an essential resource for all graduate students and practitioners in finance and related fields. Integrated treatment of asset pricing theory and empirical evidence Emphasis on investors’ decisions Broad view linking the field to financial econometrics, household finance, and macroeconomics Topics treated in discrete time, with no requirement for stochastic calculus Solutions manual for problems available to professors

Capital Asset Pricing Model und Alternativkalküle

Analyse in der Unternehmensbewertung mit empirischem Bezug auf die DAX-Werte

Author: Raphael Stahl

Publisher: Springer-Verlag

ISBN: 3658120258

Category: Business & Economics

Page: 76

View: 9709

Raphael Stahl führt den Leser nach kompakter Vorstellung des CAPM als Kalkül für den Kapitalisierungszinssatz in der DCF-Unternehmensbewertung zur kritischen Würdigung. Der Autor stellt Vergleiche zu kapitalmarktorientierten Alternativen wie der Arbitrage Pricing Theory und den Ausprägungen als 3-Factor-Model und 4-Factor-Model auf. Die kritische Analyse wird durch empirische Untersuchungen auf Basis der DAX®-Werte, beispielweise zum äquivalenten Einsatz der durch das IDW angeführten Kombinationen aus Betrachtungszeitraum und -intervall, abgerundet. Die praxisrelevanten Anregungen berücksichtigen auch die Verzerrung der Aktienmärkte durch die globale Finanz- und Wirtschaftskrise.