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. Traditional factor models, including the CAPM, are related to or derived from stochastic discount factors. A chapter on stochastic calculus provides the needed tools for analyzing continuous‐time models. Each chapter includes a “Notes and References” section and exercises for students.

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We will start with single-period models and then move to dynamic models in both discrete and continuous time. We’ll develop the theory of dynamic programming in continuous time and use it to study portfolio choice and some corporate investment decisions. Dynamic programming and other aspects of the mathematics of uncertainty in continuous time are useful in other areas of economics and finance as well. This course is an introduction to asset pricing and portfolio choice theory. Understanding how assets are priced is also important for issuing entities, like corporations, so asset pricing is also part of the foundation for corporate finance. We take supply (a topic in corporate finance) as given in this course and study demand (portfolio choice).

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• For full access to this pdf, sign in to an existing account, or purchase an annual subscription.
• Using your mobile phone camera – scan the code below and download the Kindle app.
• For valuation, the focus throughout is on stochastic discount factors and their properties.
• Understanding how assets are priced is also important for issuing entities, like corporations, so asset pricing is also part of the foundation for corporate finance.

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