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Asset Pricing and Portfolio Choice Theory
Financial Management Association Survey and Synthesis Series
Synopsis
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.
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What Reviewers Are Saying
"Kerry Back has created a masterful introduction to asset pricing and portfolio choice. The coverage of topics is comprehensive, starting in a single-period setting and then moving naturally to dynamic models in both discrete and continuous time. The numerous challenging exercises are yet another big strength. In short, an impressive achievement."
-- Robert F. Stambaugh, Miller Anderson & Sherrerd Professor of Finance, The Wharton School, University of Pennsylvania
"Kerry Back offers us a rigorous, but accessible treatment of the asset pricing theory concepts that every doctoral student in finance should learn. A distinguished scholar in the field provides a presentation that is clear yet concise."
-- Eduardo Schwartz, California Chair in Real Estate and Land Economics, UCLA Anderson School of Management
"In Asset Pricing and Portfolio Choice Theory Kerry Back has given us a comprehensive, rigorous and at the same time elegant and self-contained treatment of the important developments in this vast literature. It will be useful to graduate students and advanced undergraduate students in economics, finance, financial engineering, and management science as well as interested practitioners."
-- Ravi Jagannathan, Chicago Mercantile Exchange/John F. Sandner Professor of Finance and a Co-Director of the Financial Institutions and Markets Research Center, Kellogg School of Management, Northwestern University